The distributional impact of public services when needs differ
AbstractDespite 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 InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 94 (2010)
Issue (Month): 9-10 (October)
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Web page: http://www.elsevier.com/locate/inca/505578
Income distribution Poverty Public services Non-cash income Needs adjustment Equivalence scales;
Other versions of this item:
- Rolf Aaberge & Manudeep Bhuller & Audun Langørgen & Magne Mogstad, 2010. "The distributional impact of public services when needs differ," Discussion Papers 621, Research Department of Statistics Norway.
- Aaberge, Rolf & Bhuller, Manudeep & Langørgen, Audun & Mogstad, Magne, 2010. "The Distributional Impact of Public Services When Needs Differ," IZA Discussion Papers 4826, Institute for the Study of Labor (IZA).
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
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