A Poor Means Test? Econometric Targeting in Africa

Proxy-means tests (PMTs) are a popular method of poverty targeting with imperfect information. In a now widely-used version, a regression for log consumption calibrates a PMT score based on chosen covariates, which is then implemented for targeting out-of-sample. The performance of various proxy-means testing methods is assessed using data for nine African countries. Standard PMTs help filter out the nonpoor, but exclude many poor people, thus diminishing the impact on poverty. Some methods perform better, with a poverty-quantile method dominating in most cases. Even so, either a basic-income scheme or transfers using a simple demographic scorecard are found to do as well, or almost as well, in reducing poverty. However, even with a budget sufficient to eliminate poverty with full information, none of these targeting methods brings the poverty rate below about three-quarters of its initial value. The prevailing methods are particularly deficient in reaching the poorest.