A closer look at policy targeting and its role in addressing inequality

Policy that targets those groups most in need is the fairest way to distribute limited resources, right? Not necessarily, writes Dr Gemma Carey.

Policy targeting has an intuitive logic; it makes sense, at least on the surface, to devote more resources to those who are more in need.

For governments, it’s an attractive option – seemingly more cost effective than universal service provision.  In Australia, policy targeting has always been popular. In fact, we use more means-testing and other forms of policy targeting than many other OECD countries. This has created norms around this approach to policy, which means it often goes without closer scrutiny or is, in fact, supported by welfare groups interested in promoting equality.  However, research on policy targeting reveals that things are not so simple.

While targeting is often viewed as a means to address levels of inequality while saving government money (compared to administering universal policies), in practice targeting is highly complex and may not always be the most effective means to achieve either of these objectives.

Experimentation with policy targeting has shown that hitting the target all too often misses the point. Example, the type of place-based initatives that have been popular in the UK and Australia over the last 10 years (where areas of concentrated disadvantage are targeted for additional resources) have been found to pick up large number of people who don’t need assistance, while missing many who do(1).

Often, policy targeting doesn’t actually save government’s money either. Whitehouse et al have shown that administering a means-tested taxation system in the US is costly(2). Under such schemes, those on low incomes may receive proportionally greater benefits from employment than those on higher incomes (through reduced tax rates and additional taxation benefits) and be more encouraged to work, but when the administrative cost of such schemes are taken into account it can prove cheaper to take a universal approach(2).

Targeted services are also vulnerable to cuts.  Those who are better off, and pay more taxes, may object to their tax dollars being spent on high-cost schemes which they see as only benefiting other groups – leading to significant political pressure to retract targeted policies.

Other researchers have shown that universal services tend to impact inequality more than targeted approaches (3). When support or services are applied universally, they often have greater impact or uptake amongst those experiencing greatest need. In the long run universal approaches can be both cheaper and more effective than targeted approaches.

Finally, targeted policies can undermine universal services by creating dual or ‘tiered’ systems.  The argument is that if universal health or education services deteriorate, people start looking for private alternatives. As the private services grow, public services can deteriorate further, leaving those without the means to purchase private ones with a lower quality of service or care. This can be seen in Australia, where the emergence of private healthcare and education led to government investment in both a public and private system, drawing funding away from the public (4).

Research suggests that we need to think more carefully about policy targeting, and take a closer look at the research before supporting targeted approaches. The effectiveness, and cost-effectiveness, of targeted policies often doesn’t stand up to closer scrutiny.

While different forms of policy targeting continue to have political and intuitive appeal, existing research suggests that they are costly, difficult to administer and may actually be less effective at ‘targeting’ individuals with greater levels of need than universal policies.  In short, we need to take a closer look at targeting.

To find out more, you canread the paper this article is based on, which explores different approaches to policy targeting and their strengths and limitations.

1. McLoone P. Targeting deprived areas within small areas in Scotland: population study. BMJ. 2001;232:374–5.
2. Whitehouse E. Designing and Implementing In-Work Benefits. The Economic Journal. 1996 Jan;106(434):130.
3. Mitchell R, Dorling D, Shaw M, Joseph Rowntree Foundation. Inequalities in life and death: what if Britain were more equal? Bristol, UK: Policy Press; 2000.
4. Hurley J, Vaithianathan R, Crossley TF, Cobb-Clark DA. Parallel private health insurance in Australia: A cautionary tale and lessons for Canada. IZA Discussion Paper; 2002. Report No.: 515.

Dr Gemma Carey is a Research Fellow at the National Centre for Epidemiology and Population Health at the Australian National University. She launched Power to Persuade in 2012 while working at the University of Melbourne