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Public spending and the poor : what we know, what we need to know

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  • van de Walle, Dominique

Abstract

Public spending aims to promote efficiency and equity. This paper, drawn from a book on public spending and the poor, is concerned with the latter. In it, the author focuses on three key questions: what is the welfare objective? how are the benefits of public spending currently distributed? how can that distribution be improved? The author says that one must be clear about how performance is to be judged. Different assumptions about policy objectives shape disagreements about program assessments and recommendations. Evaluating a policy's impact requires assessing how different things would have been without it, but quantifying a counterfactual is not easy. One approach - benefit incidence - ignores behavioral responses and second-round effects, and simply uses the cost of provision as a proxy for benefits received. Other methods focus entirely on the individual's valuation of the policy benefits, allowing for responses to changes in the individual's budget set. Some reasonably robust conclusions have emerged from studies of public spending incidence. One, spending on basic services - notably primary and secondary education and basic health care- almost universally reaches the poor. The case for broad targeting, by expanding the share of public spending on these services, is well-substantiated. But even here, monitoring is required so that marginal investments are not lavished on better serving the better-off. Two,certain food subsidy and distribution schemes, social cash transfers, public employment schemes, and other targeted transfer schemes have at times been quite propoor. Three, many programs whose stated rationale is to reduce poverty have instead been dismal, expensive failures. A popular reaction has been to clamor for reform of public spending, to demand finer targeting of benefits to the poor. Most public spending programs are to some degree"targeted."The question is, what degree of targeting is optimal? Other things being equal, the more ways one discriminates between beneficiaries, the greater targeting's impact on poverty. But other things are not equal. Fine targeting sometimes comes at a cost to the poor. Administrative costs may escalate, political support may vanish, and behavioral responses may add costs to targeted interventions. There is no simple answer about how much targeting is desirable, but empirical evidence frompast studies suggests some clear principles. The optimal mix of targeted and universal poverty-reduction programs depends on several factors, including the characteristics of the poor and country-specific circumstances. When poverty is widespread and administrative capacity is low, broad targeting is desirable and results from incidence of public spending studies should help guide sectoral and intrasectoral allocations. Generally, what is needed is a combination of universalism in certain spending categories and finer targeting in others. Such a two-pronged approach is a sound starting point for policy design. But in implementing it, one should never confuse the ends and the means of policy.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1476.

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Date of creation: 30 Jun 1995
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Handle: RePEc:wbk:wbrwps:1476

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Decentralization; Public Health Promotion; Health Economics&Finance; Rural Poverty Reduction; Services&Transfers to Poor; Safety Nets and Transfers; Economic Theory&Research; Environmental Economics&Policies;

References

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  1. Gertler, Paul & Locay, Luis & Sanderson, Warren, 1987. "Are user fees regressive? : The welfare implications of health care financing proposals in Peru," Journal of Econometrics, Elsevier, Elsevier, vol. 36(1-2), pages 67-88.
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  3. Binswanger, Hans P. & Khandker, Shahidur R & Rosenzweig, Mark R., 1989. "How infrastructure and financial institutions affect agricultural output and investment in India," Policy Research Working Paper Series 163, The World Bank.
  4. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, Elsevier, vol. 21(2), pages 183-214, July.
  5. Haddad, L. & Kanbur, R., 1989. "How Serious Is The Neglectof Intra-Household Inequality?," Papers, Stockholm - International Economic Studies 450, Stockholm - International Economic Studies.
  6. Browning, Martin, 1992. "Children and Household Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1434-75, September.
  7. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521336017.
  8. Selden, Thomas M. & Wasylenko, Michael J., 1992. "Benefit incidence analysis in developing countries," Policy Research Working Paper Series 1015, The World Bank.
  9. Pollak, Robert A., 1991. "Welfare comparisons and situation comparisons," Journal of Econometrics, Elsevier, Elsevier, vol. 50(1-2), pages 31-48, October.
  10. Gertler, P. & Glewwe, P., 1989. "The Willingness To Pay For Education In Developing Countries," Papers, World Bank - Living Standards Measurement 54, World Bank - Living Standards Measurement.
  11. Lanjouw, Peter & Ravallion, Martin, 1995. "Poverty and Household Size," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(433), pages 1415-34, November.
  12. Deaton, Angus S & Muellbauer, John, 1986. "On Measuring Child Costs: With Applications to Poor Countries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 720-44, August.
  13. Lipton, Michael & Ravallion, Martin, 1993. "Poverty and policy," Policy Research Working Paper Series 1130, The World Bank.
  14. Datt, Gaurav & Ravallion, Martin, 1990. "Regional disparities, targeting, and poverty in India," Policy Research Working Paper Series 375, The World Bank.
  15. Haddad, L. & Kanbur, R., 1990. "Is There An Intra-Household Kuznets Curve? Some Evidence from the Philippines," Papers, Warwick - Development Economics Research Centre 101, Warwick - Development Economics Research Centre.
  16. Sudhir Anand & Martin Ravallion, 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 7(1), pages 133-150, Winter.
  17. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 57(225), pages 119-29, February.
  18. Sen, Amartya K, 1979. "Personal Utilities and Public Judgements: Or What's Wrong with Welfare Economics?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 89(355), pages 537-58, September.
  19. Ravallion, Martin, 1991. "Reaching the Rural Poor through Public Employment: Arguments, Evidence, and Lessons from South Asia," World Bank Research Observer, World Bank Group, World Bank Group, vol. 6(2), pages 153-75, July.
  20. Litvack, Jennie I. & Bodart, Claude, 1993. "User fees plus quality equals improved access to health care: Results of a field experiment in Cameroon," Social Science & Medicine, Elsevier, Elsevier, vol. 37(3), pages 369-383, August.
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Citations

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Cited by:
  1. Vadlamannati, Krishna Chaitanya, 2008. "Socioeconomic, Institutional & Political Determinants Of Human Rights Abuses: A Subnational Study Of India, 1993 – 2002," MPRA Paper 10142, University Library of Munich, Germany.
  2. Kiringai, Jane, 2002. "Debt and PRSP Conditionality," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Dabla-Norris, Era & Matoovu, John M. & Wade, Paul, 2002. "Debt Relief, Demand for Eduction, and Poverty," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Anoshua Chaudhuri, 2009. "Spillover Impacts of a Reproductive Health Program on Elderly Women in Rural Bangladesh," Journal of Family and Economic Issues, Springer, Springer, vol. 30(2), pages 113-125, June.

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