Designing Fiscal Redistribution : The Role of Universal and Targeted Transfers

There is a growing debate on the relative merits of universal and targeted social assistancetransfers in achieving income redistribution objectives. While the benefits of targeting areclear, i.e., a larger poverty impact for a given transfer budget or lower fiscal cost for a givenpoverty impact, in practice targeting also comes with various costs, including incentive,administrative, social and political costs. The appropriate balance between targeted anduniversal transfers will therefore depend on how countries decide to trade-off these costs andbenefits as well as on the potential for redistribution through taxes. This paper discusses thetrade-offs that arise in different country contexts and the potential for strengthening fiscalredistribution in advanced and developing countries, including through expanding transfercoverage and progressive tax financing