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