Is More Targeting Consistent with Less Spending?

Economists often advise governments to target their spending better when cuts are called for. This paper asks whether that advice is consistent with a political-economy constraint that limits the welfare losses to the non-poor from spending cuts. A simple theoretical model shows that the answer is unclear on a priori grounds, and so will depend on the specifics of program design and financing. A case study for a World Bank-supported social program in Argentina illustrates how cuts can come with worse targeting performance; the allocation to the poor falls faster than that to the non-poor. Some lessons are drawn for how the poor might be better protected from cuts.