rule would effectively raise Samurdhi benefits by five times for eligible households, but assume that the benefits will be perfectly targeted towards the poorest 20% of the population.<sup>13</sup> Bottom 20% is chosen as the target population since about 20% of the population currently receives Samurdhi benefits. The PMT score cutoff of 25% is used to identify approximately the bottom 20% households based on Table 3. Scenario 3 in Table 5 is budget neutral compared to Scenario 1 since the total Samurdhi benefits subtracted in Scenario 2 are simply re‐distributed among eligible households according to their PMT score. The consumption values and Samurdhi payments in all of the scenarios are conducted at the per capita level in order to make the scenarios comparable.

Table 5: Comparison between different transfer schemes

|Scenarios|Poverty<br>Headcount index<br>α=0|Poverty<br>Gap Index<br>α=1|Poverty<br>Severity Index<br>α=2|
|---|---|---|---|
|1. Baseline scenario (Per capita consumption)||||
|a. National Poverty Line|4.08%|0.006|0.002|
|b. $3.20 International Poverty Line|9.73%|0.018|0.005|
|c. $5.50 International Poverty Line|39.67%|0.113|0.044|
|2. Per capita consumption minus Samurdhi payment||||
|a. National Poverty Line|4.87%|0.009|0.003|
|b. $3.20 International Poverty Line|10.92%|0.022|0.007|
|c. $5.50 International Poverty Line|40.58%|0.121|0.050|
|3. Household consumption minus Samurdhi payment plus||||
|Rs.1732 (all per capita) for eligible households identified by<br>the PMT formula||||
|a. National Poverty Line|1.63%|0.003|0.001|
|b. $3.20 International Poverty Line|5.50%|0.009|0.002|
|c.$5.50 International PovertyLine|37.01%|0.087|0.030|

Note: The poverty line for this exercise is set at Rs. 4,166 per person per month, the official national poverty line in 2016. The international poverty line is in 2011 PPP dollars per person per day converted to 2016 Rupees. The α refers to the parameter in the FGT index. Analysis based on HIES 2016. Scenario 3 allows for some amount of mistargeting since the redistribution is based on the PMT formula. The $3.20 and the $5.50 lines refer to the thresholds for Lower Middle‐Income Countries and Upper Middle‐Income Countries, respectively, according to World Bank definitions.

The last three columns of Table 5 present the following FGT measures for the scenarios we examine: poverty headcount index (α=0), poverty gap index (α=1), and poverty severity index (α=2). We see that the poverty headcount rates set at the national poverty line and the $3.20 line are 4.08 percent and 9.73 percent, respectively, in the baseline scenario. In this scenario, households report receiving Samurdhi benefits in the HIES 2016. In the second scenario, we remove the Samurdhi payments that households may have been receiving. As a result, we see that the poverty headcount rates increase to 4.87 percent and 10.92 percent in this scenario due to lower consumption levels. In the third scenario, recipient households, identified using the PMT formula (Model 1) presented in this paper, are given Rs. 1,732 per person per

> 13 Using the government’s actual budget on Samurdhi payments during 2016 would be more realistic than the scenario examined here.

13