Welfare, targeting, and anti-poverty effectiveness: The case of urban China

• We examine Dibao's targeting and anti-poverty effectiveness in urban China.
• Dibao participation rate increased but mis-targeting also increased overtime.
• Dibao benefit gap remained substantial.
• Dibao reduced poverty to a great extent but was unable to eliminate poverty.
• Future reforms need to focus on better targeting and fuller benefit delivery.

Using data from the China Household Income Project (CHIP) 2002 and 2007 data, this article provides a thorough examination of the targeting performance and anti-poverty effectiveness of urban China's primary poverty reduction program, Dibao. We found that Dibao participation rate increased during this period, but its mis-targeting rate also increased. In both years, the Dibao benefit gap remained substantial, accounting for about one quarter of the potential full post-Dibao income of all eligible families. Using a propensity score matching method to identify non-participating families comparable to participating families, we found that Dibao had significant poverty reduction effects in both years, and the effect was larger in 2007 than in 2002. However, Dibao was unable to eliminate poverty among its target population, with notable poverty rate, gap, and severity remaining in both years. Future policy reforms should focus on the improvement of Dibao's anti-poverty effectiveness by better targeting, narrowing the benefit gap, and addressing not only the poverty rate but also the poverty gap and severity.