The Implications of Poverty Dynamics for Targeting the Poor: Simulations Using Indonesian Data


One of the key challenges on delivering benefits of poverty programs to the poor is to ensure that the beneficiaries of the programs are indeed the targeted population. This paper aims at assessing the implications of poverty dynamics on the accuracy of targeting, using a three-year panel data from Indonesia. We find that the existence of poverty dynamics within only three years period already contributes to large inclusion and exclusion errors in program targeting. We simulate several scenarios as an alternative way to increase targeting accuracy by increasing the threshold for determining the program beneficiaries. We find that the higher the threshold, the exclusion error becomes lower but the inclusion error becomes larger. At the same time, the number of beneficiaries becomes larger, implying increasing program costs. However, a significant part of inclusion error is consisted of vulnerable households, which experience poverty in other years. These findings imply that if the government wants to make sure that the poor receive the benefits of poverty programs, they need to increase the budget allocated toward poverty programs substantially. This may require an integration of various existing poverty programs. Another implication from the findings of this study points to the importance of regular and more frequent updating of the poor population database which is used for targeting of poverty programs.


Keywords: Poverty, vulnerability, dynamics, targeting, Indonesia

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