37 groups is generally done after the intervention. The most common approaches are the matching method, the double difference method, and the regression discontinuity method. The matching method attempts to match the comparison to the treatment group based on observable characteristics. The idea is to select as a comparison group those with the same probability of participation in the program. The limitation of this method arises from the assumption that there is no unobserved heterogeneity, that is, there is no bias arising from unobserved factors. The double difference method overcomes this limitation by comparing the differences between the treatment and comparison groups (first difference) before and after the program (second difference). The limitation of this method arises from the assumption that the bias arising from unobservable factors remains constant through time. Finally, the regression discontinuity method may be applied when a program is assigned based on a specific threshold which produces discontinuity in the participation (individuals participate or not) but the individuals just below the threshold are identical to those just above the threshold.

# **2. Public expenditure and capital formation- results from some impact evaluations**

Most impact evaluations have centered on quantifying the impact of policies on human capital formation (education, nutrition and health) while relatively fewer studies have analyzed the impact of infrastructure or the impact of policies on building assets. This section describes some results of different evaluations that highlight the importance of public programs on capital formation.

There have been numerous evaluations performed on the policy impact on human capital formation, and currently the World Bank (2007b) is undertaking a project to extract lessons from several evaluations of a specific type of program<sup>20</sup> . Here the focus will be in the Mexican Progresa-Oportunidades, because it was the first program of its type, and the positive results of the evaluation (Skoufias, 2005) have led to its extrapolation to other countries (Brazil, Colombia, Bangladesh, Australia adopted this type of program for indigenous peoples, and New York City started one too) (World Bank, 2007b).

With variations, these programs transfer cash to poor families, conditioned on their undertaking certain actions to build up human capital of their children. Generally, these actions entail ensuring school attendance, visit to doctors and intaking a minimum amount of a nutritional supplement. The transfer is an incentive to build up human capital and, hence, is expected to alleviate long-run poverty. The program also has a short-run effect on poverty through the cash transfer income itself. However, the cash transfer may also affect negatively the beneficiary’s labor supply on two counts: the income effect of the transfer will increase demand for consumption and leisure; and a substitution effect that may divert time towards meeting the program conditionality.

The Progresa impact evaluation shows positive results of the program (Skoufias, 2005). On the education side, the program led to an increase in school attendance for boys and 20 The specific type of program is the conditional cash transfer, or CCT, described below.