Poverty-Reducing Targeting Programmes: a General Equilibrium Approach1

This paper analyzes poverty-reducing targeting programmes using a classical real side numerical general equilibrium model for Côte d'lvoire. The model allows us to take into account general equilibrium effects of targeting programmes that could otherwise not be captured, such as relative price effects and financing implications. The paper first reviews targeting analysis, then describes the structure of the model and the impacts of targeting programmes using the model. Results from counterfactual policy analyses show that when general equilibrium effects are taken into account, given a budget neutral targeting programme, it is more difficult to eliminate poverty as is suggested under traditional analysis. Prices of products bought by the poor rise, and they bear some of the financing burden through indirect taxes. Results vary across the socio-economic households defined in the model, and at the same time, small transfers generally have a greater relative effect than larger targeting programmes. The paper also shows that domestic features such as inter-household transfers play an important role in determining the final outcome of the targeting programme. The policy implications are discussed in terms of programmes cost and the targeting of groups that should benefit from these programmes.