Research Insights: Can Dynamic Targeting Mechanisms Improve the Social Value of Safety Nets?

Traditional proxy-means tests approaches to selecting beneficiaries of social programs can exhibit higher levels of exclusion errors when income fluctuates. These errors can erode the social value of a safety net. Expanding the coverage of the safety net reduces exclusion errors but entails either larger budgets or substantial reduction of benefits. A dynamic targeting approach that includes updated information on labor market and other shocks can reduce targeting errors and increase the social value of the safety net at a substantially lower cost, relative to an expansion of the safety net.