Wednesday, January 25, 2023

Targeting on Household Income Doesn't Make Sense and Has to Go

The Malaysian government's policies on social welfare has been for the past decade been anchored on household income categories. We've become used to talking about the B40, M40 and T20 of the household income distribution, and in popular discourse these categorisations have become synonymous with the poor, the middle class, and the rich.

But the more I've thought about it, the less satisfied I've become. The fundamental problem is household heterogeneity - households are not the same in terms of their size, their composition, or the number of income earners relative to dependents. Two other problems are that a small minority of households have non-family members while some dependents that don't live within the household (primarily elderly parents living separately). These differences cause significant variation in household expenditure, that are simply not captured by anchoring policy on income.