Budgetary rules to minimize societal poverty in a general equilibrium context

Abstract

This paper derives budgetary rules for the allocation of an exogenously supplied budget to mutually exclusive socioeconomic groups so that the maximum reduction of poverty for society as a whole is attained. Budgetary rules are derived for two mechanisms of intra-group benefit distribution and for the cases where the effects of economic interaction within and between groups is considered and where it is not. A computer simulation of the budgetary rules on a hypothetical economy demonstrates the importance of economic interaction both to the optimal allocation of benefits and to the resulting reduction in poverty.