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The distributional impact of public services when needs differ

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  • Aaberge, Rolf
  • Bhuller, Manudeep
  • Langørgen, Audun
  • Mogstad, Magne

Abstract

Despite a broad consensus on the need to take into account the value of public services in distributional analysis, there is little reliable evidence on how inclusion of such non-cash income actually affects poverty and inequality estimates. In particular, the equivalence scales applied to cash income are not necessarily appropriate when including non-cash income, because the receipt of public services is likely to be associated with particular needs. In this paper, we propose a theory-based framework designed to provide a coherent evaluation of the distributional impact of local public services. The valuation of public services, identification of target groups, allocation of expenditures to target groups, and adjustment for differences in needs are derived from a model of local government spending behaviour. Using Norwegian data from municipal accounts and administrative registers we find that the inclusion of non-cash income reduces income inequality by about 15% and poverty rates by almost one-third. However, adjusting for differences in needs for public services across population subgroups offsets about half the inequality reduction and some of the poverty decrease.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 9-10 (October)
Pages: 549-562

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:9-10:p:549-562

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Income distribution Poverty Public services Non-cash income Needs adjustment Equivalence scales;

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References

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  1. Smeeding, Timothy M, et al, 1993. "Poverty, Inequality, and Family Living Standards Impacts across Seven Nations: The Effect of Noncash Subsidies for Health, Education and Housing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(3), pages 229-56, September.
  2. Andrew Jones & Owen O'Donnell, . "Equivalence Scales and the Costs of Disability," Discussion Papers 94/12, Department of Economics, University of York.
  3. Manos Antoninis & Panos Tsakloglou, 2001. "Who Benefits from Public Education in Greece? Evidence and Policy Implications," Education Economics, Taylor & Francis Journals, vol. 9(2), pages 197-222.
  4. Rolf Aaberge, 2006. "Gini’s Nuclear Family," Discussion Papers 491, Research Department of Statistics Norway.
  5. Rolf Aaberge, 2000. "Characterizations of Lorenz curves and income distributions," Social Choice and Welfare, Springer, vol. 17(4), pages 639-653.
  6. Atkinson, Tony & Cantillon, Bea & Marlier, Eric & Nolan, Brian, 2002. "Social Indicators: The EU and Social Inclusion," OUP Catalogue, Oxford University Press, number 9780199253494.
  7. Radner, Daniel B, 1997. "Noncash Income, Equivalence Scales, and the Measurement of Economic Well-Being," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 71-88, March.
  8. Aaberge, Rolf & Langorgen, Audun, 2003. " Fiscal and Spending Behavior of Local Governments: Identification of Price Effects When Prices Are Not Observed," Public Choice, Springer, vol. 117(1-2), pages 125-61, October.
  9. Lluch, Constantino, 1973. "The extended linear expenditure system," European Economic Review, Elsevier, vol. 4(1), pages 21-32, April.
  10. Lewbel, Arthur, 1989. "Household equivalence scales and welfare comparisons," Journal of Public Economics, Elsevier, vol. 39(3), pages 377-391, August.
  11. Asghar Zaidi & Tania Burchardt, 2005. "Comparing Incomes When Needs Differ: Equivalization For The Extra Costs Of Disability In The U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(1), pages 89-114, 03.
  12. Maria Evandrou & Jane Falkingham & John Hills & Julian Le Grand, 1993. "Welfare benefits in kind and income distribution," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 57-76, February.
  13. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-82, September.
  14. Rolf Aaberge & Audun Langørgen, 2006. "Measuring The Benefits From Public Services: The Effects Of Local Government Spending On The Distribution Of Income In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 61-83, 03.
  15. Irwin Garfinkel & Lee Rainwater & Timothy M. Smeeding, 2006. "A re-examination of welfare states and inequality in rich nations: How in-kind transfers and indirect taxes change the story," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(4), pages 897-919.
  16. Gemmell, Norman, 1985. "The Incidence of Government Expenditure and Redistribution in the United Kingdom," Economica, London School of Economics and Political Science, vol. 52(27), pages 335-44, August.
  17. Ruggeri, G C & Van Wart, D & Howard, R, 1994. "The Redistributional Impact of Government Spending in Canada," Public Finance = Finances publiques, , vol. 49(2), pages 212-43.
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