By World Bank
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Additional resources for Public Expenditure Analysis (Public Sector, Governance, and Accountability Series)
Therefore, what traditional expenditure incidence analysis fails to capture are the indirect effects of small changes in either the level of public spending or in its distribution, for a given level of spending. Although the magnitude of indirect effects may be minimized through the selection of the counterfactual, this discussion serves as a reminder that government spending generates both equity and efficiency effects and that these two effects are interconnected. Public Expenditure Incidence Analysis 5 The separation of equity and efficiency often found in theoretical analysis may be seldom warranted in practice.
Market economies rest on the foundation of enforceable property rights. 5 Therefore, their effect is indirect and pervasive and may be impossible to fully capture, even with the most sophisticated models. In conclusion, public expenditures may have large indirect effects that are not captured by expenditure incidence analysis. The magnitude of these indirect effects can be minimized by selecting an appropriate situation (called a counterfactual) to which we compare the existing distribution of income.
The second step involves allocating government expenditures to the selected family unit. The final step deals with selecting and applying indexes of redistribution. We will revisit the first step in the next section. This section explores the concept of expenditure incidence, identifies the suitable data sources, discusses the timeframe for the analysis (annual versus lifetime incidence) and the analytical framework (partial versus general equilibrium analysis), evaluates the choice of the unit of analysis (individual versus household or family unit), and develops a variety of income concepts that may be used in the measurement of expenditure incidence.
Public Expenditure Analysis (Public Sector, Governance, and Accountability Series) by World Bank