- Authors: Dean Spears, Nicholas Lawson
- Working paper: Revise & Resubmit at Economic Development and Cultural Change
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Abstract
In both developed and developing countries, there is significant interest in the idea of a universal basic income, where the government gives a monetary transfer to all citizens rather than targetting lower-income individuals. In developing countries, it is understood that targetting may be inefficient and inaccurate, but existing literature has argued that even if the government’s ability to accurately target the poorest is limited, it may be better to give a larger amount of money to those people who seem to be the poorest rather than a smaller amount to everyone (Hanna and Olken, 2018). However, in a developing country such as India that is characterized by corruption in the public service, we argue that targetting imposes additional social costs by empowering local semi-independent government agents with the opportunity to seek rents while identifying the “poor” agents who should receive a transfer. If the poor have to pay a bribe in order to receive a transfer, this could generate an additional misallocation of resources, as well as redistribution in the wrong direction (from poor transfer recipients to relatively well-off government employees). We calibrate a simple model of targetting of transfers and find that the existence of rent-seeking may be sufficient to make a universal basic income the optimal policy for India.