Public Expenditure Benefit Incidence on Health: Selective Evidence from India

Effectiveness of public spending is an elusive empirical issue. It has direct bearings on accountability. There is a growing recognition to analyse the distributional impacts of public spending. Public policy stance for the provision of basic services rests on both efficiency and equity grounds. Pure public goods, the goods that are nonexcludable and non-rival, usually call for full public financing. However, there are certain goods – merit goods -which may be subject to significant external benefits or costs, and thus merit some form of government intervention. The education and health are the prime examples of merit goods. Literature often engages in analysing the benefit incidence of merit goods. Since expenditures on health and education are expected to have a redistributive impact, it is important to analyse whether public spending is progressive, that is, whether it improves the distribution of welfare, proxied by household income or expenditure. Against the backdrop of the rule-based fiscal policy measures and/or austerity measures and in turn the declining or stagnant share of social spending in the budgets of many countries, the analysis of the effectiveness of public spending on merit goods stands significant. However higher public spending on merit goods per se does not ensure the budget as pro-poor. It is equally important to ensure that the poor receive an appropriate share of the increased allocation. But how does one ascertain the extent to which either the increased allocation or the existing allocation is reaching the poor? Benefit incidence analysis (hereafter BIA) is a methodology that addresses this question. It brings together the elements of the supply of and demand for public services and can provide valuable information on the inefficiencies and inequities in government allocation of resources for social services and on the public utilization of these services (Davoodi et al 2003). BIA estimates the distributional impact of public expenditure across different demographic and socioeconomic groups. The genesis of this approach lies in the works by Meerman (1979) on Malaysia and Selowsky (1979) on Colombia. BIA involves allocating unit cost according to individual utilization rates of public services. BIA can identify how well public services are targeted to certain groups in the population, across gender, social groups, income quintiles and geographical units. The effectiveness of public expenditure on merit goods is a matter of urgent concern. Does a disproportionate share of the public expenditure on health benefits the elites in the urban areas? Does the major part of health spending by the government benefits the schooling of boys rather than girls? The answer to these questions contains significant policy implications in terms of access and utilization of the