Targeted Poverty Alleviation Policy in China

Targeted Poverty Alleviation Policy in China Background/Motivation: The following graph shows the income gap between poor and rich people from 2002 to 2007. As we can see, the income gap between these two groups has widened over time. The government implements the poverty alleviation policy to narrow the income gap and increase social welfare. The government began to perform the poverty alleviation policy after reform and opening-up. In the process, although most people have been got out of poverty, poverty in some areas has not improved over the years. Therefore, the government began to implement the targeted poverty alleviation policy from 2013 to 2020 to make everyone get out of poverty. The previous poverty alleviation pays attention to all poor counties and gives subsidies — however, the targeted poverty alleviation policy focus on different areas’ different poor households. The leader or manager of the local government wants to know more about low-income family’s needs to help them directly; hence, they go to different villages to learn more about each low-income family.

The essential knowledge of the targeted poverty alleviation is to understand the requirements of each poor house. That is, the targeted poverty alleviation policy tries best to replace subsidies with concrete actions. For example, the local government will help poor households to repair houses and get jobs if those people have abilities to work. The government tries to find the reasons that lead to poverty and then help the needy families in different ways. Applied Theory: The previous poverty alleviation policy tries to subsidize each poor county through subsidies; it relates to the money transfer theory. The asymmetric information in poverty alleviation leads to moral hazard. Also, the government spends much money by giving subsidies, but the resources not adequately allocated; it is potential cost distortion. For the targeted poverty alleviation policy, it relates to food stamps theory since it tries to provide foods directly to poor households and distributes foods regularly. It refers to money transfer theory since the government also gives subsidies to low-income families but not only rely on grants. It also relates to moral hazard theory, work requirement theory, and potential cost distortion. It will focus on the moral hazard theory and work requirements during the poverty alleviation. Both policies have a different degree of moral hazard problem.

The reason that leads to moral hazard is asymmetric information while transferring money. For the previous poverty alleviation policy, moral hazard is a serious problem. On the one hand, since the government’s subsidies are based on the annual income of each household, but the government does not accurately check into each family, it just takes what each household’s reports. Without checking each family’s actual cases, it may cause some families that get more benefits than the exact needs, where to pretend to be poor households and get subsidies each year; Hence, a group of people who currently required real help will remain in poverty. This phenomenon leads to the waste of social resources and increases the cost of poverty alleviation. On the other hand, poor households that have already got out of poverty continue to receive subsidies since information not update in time. Thus subsidies make some people with working abilities become lazy and do not work. For the targeted poverty alleviation, the government require people with working skills to work and asks the local governments managers to investigate and understand each poor household. If the local government leads a strict investigation of every low-income family and the poor households actively cooperated with the government’s investigation, it will significantly reduce the probability of a moral hazard.

Also, incomes also can reflect on their salaries, however, since the income of some poor households calculated in the form of non-monetization such as grain, which makes investigation process difficult for local government managers to find out the specific income of the low-income families. If the local government managers do not have a rough idea of how much poor households earn based on how much land they farm and how much they produce, some poor households will lie again. These strategies reduce the possibility of moral hazard. Since for the previous poverty alleviation, the government is giving money instead of analyzing the real reasons for poverty cannot fundamentally solve poverty. The targeted poverty alleviation relates to work requirements theory since it requires poor people with working abilities to work. Some poor households are encouraged by the government to work outside their villages. Some local governments also help poor communities attract investment to offer jobs to guarantee them a fixed income every month and promote the development of the county.

Also, the local government managers worry that those workers cannot adapt to work quickly; managers provide training before they start to work. This strategy tries to guide the poor households to adjust to the working environment as soon as possible and allows people not only rely on the government’s subsidies. Sustained income will improve the living standards of poor households. The government helps those poor households get back to work and hopes they can continue to work and gain more work experience to adapt to different jobs. Empirical Evidence: Moral hazard problem has always been a problem in poverty alleviation. Steffen Mau in his book “The Moral Economy of Welfare States” indicates “An overly generous welfare state causes a moral hazard, and large groups of beneficiaries feel no need to make personal efforts to act responsibly” (Steffen, p78). If a country’s welfare is very comprehensive or heavily subsidized, people will become lazy to do anything. The previous poverty alleviation is an example that the government tries to fund money and makes some people who can work also choose not to work and live on subsidies. People enjoy this kind of unearned income.

Some households already got out of poverty but still, enjoy the unearned income. The difficulty of the targeted poverty alleviation investigation is that some families still want to keep the unearned income and do not want to cooperate with the government’s investigation. On the other hand, poor households always live in poor villages, poor transportation makes low-income families live in a more closed environment, so that makes them lack of information about how to improve living conditions and do not want to get out of poverty by themselves. Poor households do not have too many job opportunities is another reason for them to choose to rely on subsidies. Thus, work requirements theory is an excellent way to force them to work and reduce moral hazard. As James and Thomas mentioned (1985), work requirements would reduce the adverse effects of moral hazard and skill devaluation on poor households (James and Thomas, p15). Low-income families start to work whatever in villages or outside villages, their salaries provide a piece of income evidence to the local government managers. If people still lying on their incomes and apply to subsidies, the local government managers can check their salaries quickly and reject their applications. Also, stable incomes make those poor people less willing to lie and change their living standards by themselves. As Timothy and Stephen showed (1992), work requirements provide “appreciate incentives” to poor households (Timothy and Stephen, p2).

Work requirements encourage poor households to get out of poverty by themselves. Yonatan, Robert, and John (2011) described that work requirements provide “work incentives” and helped poor households accumulate work experience and with a higher probability of exiting this program in the future (Yonatan, Robert, and John, p28). Work requirements make poor household not only depend on subsidies but also make low-income families can save money. Thus they can use their income to buy something that they want. That can stimulate consumption. Saving money makes low-income families have money to afford their children’s tuition fees. Their children can have higher opportunities to go to the big city to access higher education. That increase the chance that children will no longer be poor. Uncertain/Risk: For work requirements, there will be some poor households with working abilities try to work in cities. Most of them are low-educated; they also do low-level jobs. They probably have much pressure due to the high cost and cannot adapt to the fast-paced life in big cities.

Some of them may be cannot afford these pressure and go back to their villages, that increase local employment pressures. However, some poor people work outside their communities; they cannot take care of their crops as usual. Work requirements may be lead to a decrease in the development of agriculture. That could make the policy less effective. The government needs to fully mobilize the enthusiasm of people to cooperate with the investigation to minimize the probability of a moral hazard. The government can implement a punishment mechanism to punish poor households who try to lie to get subsidies to improve the effectiveness of policies. Conclusion: The targeted poverty alleviation has improved a lot based on the previous poverty alleviation. The strategies that the government used become more useful than before. Poor households are motivated to work than stay at home. Moral hazard problem has reduced due to the strict investigation.

Reference:

Ben-Shalom, Y., Moffitt, R., & Scholz, J. K. (2011). An Assessment of the Effectiveness of Anti-Poverty Programs in the United States. doi:10.3386/w17042

James Gwartney; Thomas S. McCaleb, Have Antipoverty Programs Increased Poverty, 5 Cato J. 1 (1985) Provided by: The University of British Columbia Mau, S. (2014). The moral economy of welfare states: Britain and Germany compared. London: Routledge.

Workfare versus Welfare: Incentive Arguments for Work Requirements in Poverty Alleviation Programs Author(s): Timothy Besley and Stephen Coate Source: The American Economic Review, Vol. 82, No. 1 (Mar., 1992), pp. 249-261 Published by: American Economic Association

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