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The Distributional Impact of Public Services When Needs Differ

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Author Info

  • Aaberge, Rolf

    ()
    (Statistics Norway)

  • Bhuller, Manudeep

    ()
    (Statistics Norway)

  • Langørgen, Audun

    ()
    (Statistics Norway)

  • Mogstad, Magne

    ()
    (University of Chicago)

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 the 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 percent 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

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4826.

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Length: 40 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published as 'The Distributional Impact of Public Services When Needs Differ' in: Journal of Public Economics, 2010, 94 (9-10), 549 - 562
Handle: RePEc:iza:izadps:dp4826

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Keywords: non-cash income; public services; poverty; income distribution; needs adjustment; equivalence scales;

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References

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