© 1994 International Bank for Reconstruction and Development / The World Bank
research-article |
Labor Supply and Targeting in Poverty Alleviation Programs
Ravi Kanbur is with the Western Africa Department at the World Bank, Michael Keen is with the Department of Economics at the University of Essex, and Matti Tuomala is with the Department of Economics at the University of Jyv
skyl. The authors are grateful to Steve Coate, Jonathan Morduch, Kim Nead, and Dominique van de Walle for helpful comments.
The introduction of variable labor supply raises some fundamental issues in analyzing the targeting of poverty alleviation programs in developing countries. It forces a reconsideration of the standard objective function, which is based on income or expenditure and so makes no allowance for the effort made in earning that income. We show that alternative views on the appropriate valuation of effort have very different implications for commodity-based targeting rules. We also establish a benchmark for marginal effective tax rates (inclusive of benefit withdrawal) in income-tested schemes and show that indicator targeting rules may also have to be modified significantly when labor supply responses are recognized.