Targeted Transfers in Poor Countries: Revisiting the Trade-Offs and Policy Options

The conventional wisdom in mainstream development policy circles is that income transfers to the poor, and safety net policies more generally, are at best a short-term palliative and at worst a waste of money. They are not seen as a core element of an effective long-term poverty reduction strategy. These views are starting to be questioned. Firstly, evidence from careful evaluations has pointed to a number of success stories. Secondly, the presumption of an overall trade-off between redistribution or insurance and growth has come to be questioned. This paper revisits the role of targeted transfers in poor countries in light of the new theories on the social costs of uninsured risks and unmitigated inequalities. This body of theory and evidence offers a new perspective on social protection policies in poor countries, suggesting that there is scope for using these policies to compensate for the market failures that help perpetuate poverty, particularly in highinequality settings. While acknowledging caveats to policy implementation, the paper suggests that it is time for a pragmatic and open-minded approach to this class of interventions, recognizing the potentially important role they can play, but using careful design and evaluation to assure that the potential is realized.