A political economy of loose means-testing in targeted social programs

This paper studies the political sustainability of programs that are targeted toward the poor. Given
that the poor to whom these programs cater do not constitute a majority, we show that for their
own good it pays to let the middle class benefit from them in a random way. This approach mimics
the actual institutional arrangements whereby middle-class individuals feel that they can successfully
apply to the programs. We consider a two stage decision process: first a Rawlsian government chooses
the probability at which the middle class is allowed to benefit from a given program; then, majority
voting determines the level of benefit and the rate of contribution. At the first, constitutional stage,
the government cannot commit to a specific level of taxes and benefit but anticipates that these are set by majority voting in the second stage.