Studies in Fiscal Federalism and State–local Finance series
Edited by Ehtisham Ahmad and Giorgio Brosio
Chapter 12: Fiscal Policy Instruments and the Political Economy of Designing Programs to Reach the Poorest
Ehtisham Ahmad* 1 THE CONTEXT Reaching the poorest and hungry groups of the population, including those who might be left out of the Millennium Development Goals (MDGs) involves policy-makers at the central and local levels of government. While there has been considerable focus on appropriate targeting mechanisms to reach the poor (see for example, World Bank, 1990; Besley and Kanbur, 1993), attention as to which level of government should be involved, as well as the interactions between levels of government in reaching the poor, is more recent (see Bardhan and Mookherjee, 2000; von Braun and Grote, 2002 and a survey by Birner, 2007). From the policy perspective, it is important to examine the instruments available at each level of government in order to meet the needs of the poorest. If the responsibility for these groups is seen primarily as that of the central government, then direct federal/central government programs, effectively targeted but building on local information come into focus. If the primary responsibility is local, the policy focus shifts to own-source revenues for financing the expenditures and for greater local accountability, together with a modicum of equalization transfers so that all local governments have similar capacities to provide for the poorest. Designing central programs to reach the poorest may be difficult without local information. This is because the central government, particularly in large countries such as Mexico and China, lacks the ability to precisely define marginal groups or households that may not benefit from more general growth and prosperity. Yet...
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