Fiscal choices and poverty reduction by 2m18Zj


									Public Spending for Poverty Reduction

               Jeni Klugman
    One Day Workshop on Critical Issues in
      Public Expenditure Management
               June 22, 2001
               Assessing spending options: A
                   simplified framework
                     Whether and where government should spend
                Step 1
                                          Analytical Tools include:
Determine for rationale for public          Poverty diagnostics
intervention:                               Distribution of access and spending by:
1. Market failures, including public             - Level of service
goods, externalities, non -competitive           - region/rural-urban
markets                                          - population group
2. Address inequalities in access to        Evaluation of selected programs
services and distribution of income

                Step 2                    Potential Instruments include:
                                           Regulatory Measures:
Decide among alternative                   e.g. private schooling
instruments to offset market failures      Utility tariffs and universal service obligations
and/or improve distributive outcomes
                                           Revenue Measures:
                                           Review distributive impact of reve nue measures
                                             e.g. reduce taxes on ag. export.
                                           Distinguish between public finance and provision
                                           Contract out to private sector
                                           State-run entities & programs

                Step 3

Decide on the type of program if          Methods to rank across programs include:
                                            cost effectiveness analysis
state-run is chosen, and set priorities
                                            multi-criteria analysis
consistent with aggregate budget
                                            social cost-benefit
   Assessing the distribution of public
       spending : Why and what
• Inform decisions and choice of instrument

• All major programs and projects—not just the social
  sectors (!)

• Utilization as well as access

• General caveat: investments may have longer term
                  Data needs

1. National census or a household survey—
   income and demographic variables—or service
   utilization data, or qualitative surveys of users.

     Poverty diagnostics are a key building block

2. Spending by the central and local
   governments, and projects externally financed,
   disaggregated by service level or by region.
     Spending by level of service
     Government current expenditure Per Student by
      Education Level in Uganda (Ratio to primary)

              Primary        Secondary          Teacher         University

Source: World Bank, 1993. “Uganda: Social Sectors: A World Bank Country Study” Washington.
 Regional composition of spending
i) Simple breakdowns by province, district
       Per Patient Recurrent Expenditures               on
       Health, by Region in Guinea, 1994
       (spending ratio relative to the national average)
        Region                                   Hospital
        Conakry (capital)          2.99            1.08
        Lower Guinea               0.67            0.80
        Middle Guinea              0.84            1.34
        Upper Guinea               0.88            0.97
        Forest                     0.61            0.95
        All Guinea                 1.00            1.00
       Source: World Bank, 1996, “Republic of Guinea Public
       Expenditure Review,” Report No. 14039-TA.

ii) poverty map
            Benefit incidence analysis
Conventional (static/ average) approach has three steps:
   – Estimating unit cost, (subsidy) per person: requires data on
     capital and recurrent costs;
   – Imputing the unit subsidy to households (individuals) based
     on their utilization of the service—usually derived from
     household surveys; and
   – Aggregating households (individuals) into groups (e.g.
     quintiles) and comparing subsidy incidence across these
     Population can be further broken down by region, ethnic
     group, or gender.
               Distribution of Public Education Spending by
                           Quintile: Côte d’Ivoire


          20                17         17         17
          15      14

                  1          2          3         4           5
Distribution of marginal benefits of
        program expansion
 The current distribution of benefits of spending may not be the
 same as what would happen with program expansion. Reasons
1. “Capture” by different income groups over time
2. Remote or inaccessible regions less well-served by current
3. Scaling up may reduce targeting effectiveness

    A program that currently benefits mainly the non-poor
     may still warrant expansion, as the poor may benefit
     disproportionately from increases in spending levels; or
     vice versa
       Estimating marginal benefits

Data requirements:
   –   household data to allow calculation of quintile specific
       participation (e.g. enrolment) rates
Approach is to compare average & marginal odds:
   1. Calculate the average odds ratio (defined as the
      quintile average rate divided by population average
   2. Estimate the marginal odds ratio-defined as the
      marginal increase in quintile specific rate associated
      with an aggregate change in overall rate
      Comparing average and marginal
         odds: primary education
                           Rural India - (1993 – 4)
                                               Average                                               Marginal
Quintile   Boys                        Girls                           Total               Boys        Girls     Total
              Average     Enrollmen         Average       Enrollment          Average     Marginal    Marginal
              odds of     t rate (%)        odds of        rate (%)           odds of      odds        odds
             enrollment                    enrollment                        enrollment
            (mean=1.0)                    (mean=1.0)                        (mean=1.0)
Poorest    0.75           31.6           0.66            37.2              0.71             1.09        1.08      1.10
                                                                                           (6.90)      (9.65)    (8.99)
2nd        0.93           43.1           0.91            48.6              0.90             0.91        0.91      0.97
                                                                                           (6.05)      (6.99)    (7.92)
3rd        1.07           50.3           1.06            55.8              1.08             0.92        0.84      0.87
                                                                                           (5.85)      (6.54)    (7.65)
4th        1.16           58.6           1.26            62.6              1.21             0.66        0.66      0.67
                                                                                           (4.10)      (4.28)    (4.77)
5th        1.23           65.2           1.38            67.7              1.31             0.53        0.70      0.67
                                                                                           (4.08)      (5.53)    (5.69)
Ravallion and Lanjow 1998
• Supporting functions may be more important for the poor in
  the long term
• The cost of services is an inadequate proxy for the benefits
• Neglects differences in ability of different social groups to
  transform access to the service into improved well-being
• Neglects differences in the quality of services provided
• Government spending does not represent the full cost to
• Results may well be sensitive to assumptions about
  equivalence and economies of scale
            Program Evaluations
• Rigorous methodology: various statistical techniques
for    assessing the consequences of a program
intervention in relation to what would have occurred in the
absence of the program (by using, e.g., control groups).
    – preferably combined with qualitative and
      participatory information to understand the
      underlying processes and constraints
• In many countries, however, few if any, rigorous
evaluations of any programs have been done
• Developing more systematic evaluation strategy with
respect to key programs is an important part of a PRSP to
inform future resource allocations
 Assessing options in the short term

1. Overall fiscal analysis
2. Program descriptions
3. Poverty profile
4. Relationship between program and
   poverty profile
5. Preliminary overall evaluation
            Mapping programs onto poverty
               profile (Cerea, Brazil)
Household Group            Absolute   Key income                  Program Type
                           Numbers    characteristics
                                         Mean          Poverty     Human     Development        Risk
                                        income        Incidence                             Management
                                                         (%)                               (transfers etc)
1. Rural landless
2. Small farmers
3. Rural non-farm
4. Small town (all)
5. Metropolitan informal
6. Metropolitan manual
formal workers
7. Metropolitan skilled
formal workers
8. Urban inactive

Total (All Ceará)
     Key relevance to PRSPs

(i) Is the financing plan adequate & credible?

(ii) Are fiscal choices (expenditure and revenue
     policies) consistent with strategic priorities
     and institutional capacity?

(iii) Is public financial management adequate to
      ensure effective implementation?
See the JSA Guidelines
      Costing PRSPs: Burkina Faso
• Projected medium-term budget for priority sectors:
   – Based on existing program budgets from line ministries and MTEF
• A financing plan for specific measures in the PRSP. BUT
   – Only costing of “additional” (relative to existing sectoral
     programs) activities explicit but of the four priority programs in
     PRSP (“ Accelerated Growth” and “Good Government”) not
   – For funding sources, only HIPC resources explicit
   – MTEF presented in very summary form, with a line for the so-
     called “additional” PRSP expenses.
         Costing Uganda’s PEAP
1. Presentation of MTEF, including:
    i. Linkages with the macroeconomic framework; and
    ii. Table summarizing sectoral expenditure shares
2. Discussion and summary table of institutional Poverty
   Action Fund (PAF) a subset of the MTEF.
    •   Sources of funding are not clearly identified.
    •   Annex table on “Goals, targets and indicators in the
        PEAP 2000” presents partial costing for achieving
    Cambodia’s draft SEDP(PRSP)
• Every sector presents a "wish list"
• No clear presentation of a forward-looking budget.
• The PIP (including "high priority projects") is
  presented, but:

  – recurrent cost implications ignored.
  – need to link the PIP to a medium-term framework of resource
  mobilization is recognized, but no explicit work plan for how
  this is to be achieved.
  – unrealistic external financing envelope: PIP was 50%
  – PIP presents sectoral allocations only within infrastructure.
1. Improving the quality of expenditure analysis
   • asking the right questions at key stages in the budget cycle
     – about the rationale for spending, and its distributive
   • good poverty diagnostics—both quantitative and
2. Complementarity of different data and techniques to
   examine the distributional impact of spending
3. Fundamentally linked to basic principles of good
   public sector financial management, including
   comprehensiveness, medium term perspective and

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