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

Author

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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.

Suggested Citation

  • van de Walle, Dominique, 1995. "Public spending and the poor : what we know, what we need to know," Policy Research Working Paper Series 1476, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1476
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    References listed on IDEAS

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    Cited by:

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    2. Philippe De Donder & Eugenio Peluso, 2018. "Politically sustainable targeted transfers," Public Choice, Springer, vol. 174(3), pages 301-313, March.
    3. Klasen, Stephan & Reimers, Malte, 2017. "Looking at Pro-Poor Growth from an Agricultural Perspective," World Development, Elsevier, vol. 90(C), pages 147-168.
    4. Uzochukwu Amakom, 2016. "Nigeria’s Government Spending on Basic Education and Healthcare in the Last Decade: What has Changed After Reforms?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(3), pages 1085-1102, July.
    5. Stoeffler, Quentin & Mills, Bradford & del Ninno, Carlo, 2016. "Reaching the Poor: Cash Transfer Program Targeting in Cameroon," World Development, Elsevier, vol. 83(C), pages 244-263.
    6. Dethier, Jean-Jacques, 1999. "Governance and Economic Performance: A Survey," Discussion Papers 279846, University of Bonn, Center for Development Research (ZEF).
    7. Anoshua Chaudhuri, 2009. "Spillover Impacts of a Reproductive Health Program on Elderly Women in Rural Bangladesh," Journal of Family and Economic Issues, Springer, vol. 30(2), pages 113-125, June.
    8. Mohammad Rezaul Karim, 2021. "Distributional effects of public healthcare and education expenditure: A case of Thailand," Journal of Community Positive Practices, Catalactica NGO, issue 2, pages 15-30.
    9. Elena Glinskaya, 2005. "Education and Health Expenditures in Bangladesh," Journal of Developing Societies, , vol. 21(1-2), pages 91-120, June.
    10. Era Dabla-Norris & John M. Matoovu & Paul Wade, 2002. "Debt Relief, Demand for Education, and Poverty," WIDER Working Paper Series DP2002-52, World Institute for Development Economic Research (UNU-WIDER).
    11. Cecilia Ugaz, 1997. "Decentralization and the Provision and Financing of Social Services: Concepts and Issues," WIDER Working Paper Series wp-1997-130, World Institute for Development Economic Research (UNU-WIDER).
    12. Raymond Struyk & Anastasia Kolodeznikova, 1999. "Needs-based Targeting without Knowing Household Incomes: How Would it Work in Russia?," Urban Studies, Urban Studies Journal Limited, vol. 36(11), pages 1875-1889, October.
    13. Kanayo K. Ogujiuba, 2022. "Which Demographic Quintile Benefits from Public Health Expenditure in Nigeria: A Marginal Benefit Analysis," Economies, MDPI, vol. 10(10), pages 1-17, October.
    14. Jane Kiringai, 2002. "Debt and PRSP Conditionality: The Kenya Case," WIDER Working Paper Series DP2002-54, World Institute for Development Economic Research (UNU-WIDER).
    15. Chakraborty, Lekha & Singh, Yadawendra & Jacob, Jannet Farida, 2012. "Public Expenditure Benefit Incidence on Health: Selective Evidence from India," Working Papers 12/111, National Institute of Public Finance and Policy.
    16. 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.

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