Benefit incidence analysis in
            developing countries
As interesting and difficult as it is to
            allocate tax burdens to individuals, the profession knows
            even less about allocating benefits. The authors survey the
            literature on benefit incidence since DeWulf's (1975)
            review, focusing on the methodology and results of benefit
            incidence analysis in developing countries. Research in this
            area faces all the general-equilibrium difficulties faced by
            tax incidence analysis as well as the difficult task of
            measuring benefits from publicly provided goods and
            services. Despite the inherent pitfalls of this methodology,
            the authors believe that benefit incidence analysis can
            provide an important perspective on the budget by combining
            data on household use with data on project costs. In
            particular, benefit incidence analyses can help illuminate
            the distributional impacts of proposed reallocations of
            government resources among projects. The value of such
            research is especially high considering the scarcity of
            recent research in this area. The authors review the
            existing methodology, survey the available results, and
            point out areas in which further research might have large
            payoffs. They also make specific methodological suggestions
            that might help ensure that future research is as useful for
            policymakers as possible. For example: Aggregate results
            based on the zero-government counterfactual rely on strong
            assumptions about fixed relative prices and incomes,
            government efficiency, and the relationship between marginal
            and total benefits. And those studies are often not designed
            to identify which types of public services benefit the poor.
            Researchers should focus more on providing benefit incidence
            studies on specific government functions or programs that
            can help policymakers reach conclusions about proposed
            reallocations of resources among government programs.
            Benefit incidence should be assigned to households based on
            household survey information on usage rather than on ad hoc
            assumptions that assign benefits based on income or the
            number of members in the household. Improved annual cost
            measures for services need to be developed, particulary for
            capital inputs. Researchers should group households by
            deciles and whenever possible should consider other
            groupings based on household income adjusted for household
            composition, age, location, and other relevant socioeconomic
            variables. Careful attention to life-cycle benefits, benefit
            shifting, rent-seeking, out-of-pocket costs, displacement of
            private sector efforts, average versus marginal incidence,
            and several other issues can significantly increase the
            value of benefit incidence analysis to policymakers.