Who Better Targets the Poor?
By Taruna Shalini Ramessur-Seenarain | Fall 2006
Abstract: Poverty has a spatial component. There are not only impoverished people, but also impoverished places, such as slums and marginalised farming areas. According to Dreze and Sen (1989), one of the strategies to alleviate poverty, involves improving the access to consumption of the poor in the short term through income redistribution. Recently there has been a lot of debate over the issue of who—the central government or the federal/local government—should redistribute income in order to better reach the poor.
The conventional theory of fiscal federalism suggests that redistribution activities should be performed by the central government, because otherwise competition of regional governments, enforced by mobility and migration of private households, may lead to an erosion of the social support system. However sceptics argue that decentralized redistribution might be more efficient since redistribution is closer to citizens' preferences. This paper tries to cast light on this issue using a sample of Sub-Saharan African countries. The results obtained show that local governments have an informational advantage since they are closer to the citizens. However, the answer to whether this advantage helps them to better target the poor than the central government, while redistributing income, still remains ambiguous, for the sample as a whole. However when the sample is further broken into two groups: the developing and the less developing ones, the results show that, in the former case, local governments are better placed in undertaking redistribution function as opposed to what the conventional theory states.
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