The distributional impact of public services when needs differ

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 noncash 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.

The Welfare State and Antipoverty Policy in Rich Countries

“…Furthermore, even with the insurance approach the fact that different households have different underlying needs should be taken into account in arriving at conclusions about the welfare implications of in-kind benefits (on which see Aaberge et al, 2010).…”

Microsimulation and Policy Analysis

“…The economic value of public in-kind benefits can be imputed at individual or household level on the basis of per capita spending considering the average cost of public services (such as providing care and education services), the gain from paying below-market rent or no rent at all for public housing or the risk-related insurance value approach that considers public health care services equivalent to purchasing an insurance policy with the same cost for individuals who have the same socio-demographic characteristics. See Aaberge et al (2010a) andPaulus et al (2010) for empirical evidence across European countries and for methodological insights on the derivation of needs-adjusted equivalence scales which are more appropriate for extended income. However, survey data usually do not include enough information to simulate changes in the value of the benefit due to policy reforms, nor take into account the real utilisation by the individual, the quality of the public service, or the discretion in the provision usually applied by local authorities (Aaberge et al, 2010b).…”

Cost of Service Approach to the Measurement of Public Expenditure Incidence

“…Následně byly spočteny částky výdajů odpovídající jednotlivým kompozitním statkům či transferům. 2 Ve skutečnosti však některé kompozitní statky (např. vzdělání nebo doprava) představují několik statků, jejichž dopad byl analyzován samostatně.…”