Who benefits from public services? Novel evidence and implications for inequality measurement

Traditional inequality statistics focus on disposable income, ignoring households’ consumption of public services. This article provides novel evidence on the distributional incidence of public goods, combining budget data with rich microdata in the context of post-apartheid South Africa. Redistribution through public services is large and has considerably grown. The poorest 50% consume 60% of public education, 50% of healthcare, 40% of police and local government services, and only 7% of transport infrastructure. In-kind transfers received by the poorest 50% are three times larger than cash transfers and can account for half of real income growth among this group since 1993. These results have major implications for recent debates on inequality measures consistent with macroeconomic growth: existing methods underestimate the rise of redistribution by 60%.