Safety Nets or Safety Ropes? Dynamic Benefit Incidence of Two Crisis Programs in Indonesia

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The authors extend the standard concept of static benefit incidence to dynamic benefit incidence––the relationship between programme benefits and changes in household expenditures. Using panel data this paper compares the static and dynamic benefit incidence of two programmes: sales of subsidised rice targeted on administrative criteria and a set of public employment schemes based on self-selection targeting. Programme design appears to have made a substantial difference in both static and dynamic benefit incidence. The employment creation schemes were much more responsive to expenditure shocks than were sales of subsidised rice. For instance, a household from the middle quintile of expenditures in the pre-crisis survey period (May 1997) who suffered the worst quintile shock was four times more likely to have participated in the employment creation programme than a similar household with a positive shock but only one and a half times more likely to receive subsidised rice. Using the observed pattern of static and dynamic benefit incidence to compare the two programmes and a uniform transfer, the authors show that if the middle-income households are sufficiently risk averse the additional insurance value of programmes with superior dynamic benefit incidence can alter the median voter outcome in favour of more targeted programmes.

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