Measuring the Effectiveness of Fiscal Policy in Multidimensional Poverty Reduction

In this paper we propose indicators of impact and spending effectiveness of fiscal interventions for multidimensional poverty reduction. We bring together CEQ’s fiscal incidence methodology with OPHI’s multidimensional poverty methodology, using an MPI with the 𝑀0 structure as the metric for evaluation. The effectiveness indicators in the multidimensional case need to simultaneously consider the best allocation of money across dimensions (which deprivations to lift?) and across households (to whom should they be lifted?). In the impact effectiveness indicator, the observed poverty reduction is compared against the optimal reduction that could have been achieved. In turn, the spending effectiveness indicator compares the observed spent budget with the minimum budget that could have been spent had the money been allocated optimally. We consider two alternative criteria to find the optimal allocation: one that prioritizes reducing poverty (either incidence or intensity) to the biggest number of people -the MaxN-LNOB criterion- and another which prioritizes reducing poverty among poorest poor -the LNOB-MaxN criterion- which is a form of prioritarianism. When household sizes are ignored or poverty identification is done at the individual level, the two criteria coincide. The proposed methodology can be implemented using cross-sectional household survey (or census) data, alongside information on the cost of removing each deprivation at the household level, and information on the public spending the government has allocated or plans to allocate to the dimensions under analysis. The methodology can be implemented ex-post, as an effectiveness assessment, as well as ex-ante, to guide a multidimensional poverty reduction programme.

 

 

Maria Emma Santos is a Research Associate at OPHI and a Post-Doctoral Fellow of the Consejo Nacional de Investigaciones Cientificas y Tecnicas (CONICET), Argentina. Her research interests include the measurement and analysis of chronic and multidimensional poverty, the quality of education, its determinants, and its role for poverty persistence. She is particularly interested in Latin American countries.

James Foster is the Oliver T. Carr, Jr., Professor of International Affairs and Professor of Economics at the George Washington University. He is also a Research Associate at the Oxford Poverty and Human Development Initiative at Oxford University. Professor Foster’s research focuses on welfare economics — using economic tools to evaluate and enhance the wellbeing of people. His work underlies many well-known social indices including the FGT poverty measures, the global Multidimensional Poverty Index (MPI), dozens of national MPIs used to guide domestic policy against poverty, the Women’s Empowerment in Agriculture Index (WEAI) at USAID, the Gross National Happiness Index of Bhutan, the Better Jobs Index of the InterAmerican Development Bank, and the Statistical Performance Index of the World Bank. Prof. Foster received his PhD in Economics from Cornell University and has a Doctorate Honoris Causa from Universidad Autónoma del Estado Hidalgo (Mexico). 

 

 

About The Series:

The Institute for International Economic Policy (IIEP) at George Washington University and the Oxford Poverty and Human Development Initiative (OPHI), with the support of the United Nations Development Programme’s Human Development Report office (UNDP HDRO), are pleased to host a special seminar series on the global Multidimensional Poverty Index (global MPI). Goal 1 of the Sustainable Development Goals (SDGs) is to end poverty in all its forms and dimensions. The global MPI offers a tool to make progress towards this goal.

Bringing together the academic and policy spheres, this series of seminars will highlight topics such as race, ethnicity, gender, and caste, the statistical capacity of nations, social protection, the use of geospatial mapping in tracking poverty, poverty and refugees, and evaluating whether we’re on track to meet UN SDG Goal #1. The sessions will also include work that applies the global MPI methodology, the Alkire Foster method, to innovative measures.

The seminars are taking place online on Mondays at 11 a.m. ET. They are open to everyone focused on improving the lived experience of those who are deprived.