Decentralization of Social Assistance Programs and the Poverty Reducing Impacts of Earnings Potential Equivalence Scales

Who receives aid and how much he or she receives are questions of central importance for any well-functioning social protection program. We investigate community-based processes for allocating aid within Ethiopia’s Productive Safety Net Program. We document local governments’ noncompliance with federal implementation mandates; instead of distributing aid via the federally mandated uniform per capita payment schedule, communities distribute aid based on locally determined equivalence scales. Rather than equalizing consumption, it appears that local communities allocate aid based on an earnings potential equivalence scale by assigning higher payments to cohorts that have lower wage earnings potential (e.g., teenage girls vs. teenage boys, adult women vs. adult men, elderly vs. working age adults). The decentralized implementation approach reduces head count poverty more than if communities followed central implementation mandates. However, poverty gap and poverty gap squared measures would be lower under central implementation mandates. The choice of distribution rules at the intensive margin does not materially affect poverty measures, suggesting that targeting efforts might be best focused on eligibility at the extensive margin.