Does public expenditure on basic education redistribute resources to poor people? According to standard incidence studies of public finance, the answer is yes. Those studies show that most redistribution in developing countries takes place on the expenditure side, through a few nearly universal public services in education and health.<sup>2</sup> In his early well-known study of the redistribution effect of public spending in Malaysia, Meerman (1979) found that the cost per pupil in public primary and secondary education represented a subsidy equal to less than 10 percent of average income for all households, but almost 30 percent of income for the poorest quintile of households. Likewise, free health services dispensed in public health centers and hospitals represented 5 percent of total household expenditures, but three times as large a share for the poorest quintile. More recent studies confirm this finding for Malaysia and reveal similar patterns in several other countries.<sup>3</sup> By contrast, other better-targeted programs with explicit redistribution objectives – such as food subsidies, public employment schemes, and some infrastructure investments – have much less redistributional impact, because of their relatively modest budgets.<sup>4</sup> Despite this consensus, there is no unanimity on just how to measure the redistributive effect of public spending in education and health. The two leading alternatives are the “standard” incidence analysis, on the one hand, and the “estimated willingness to pay” (or simply “estimation”) approach, on the other. In the standard analysis, the total public cost of education and health services is imputed proportionally to the number of users – the number of children attending school, for example, or the number of people having access to health care units. This was the approach taken in the first studies of the distributional incidence of public spending by Meerman (1979) and Selowski (1979)<sup>5</sup> . By contrast, in the ‘estimation approach’, the estimated benefits from public spending are based on how much users are willing to pay for the corresponding good – in this example, school enrollment for their children or access to a hospital or a health care unit (Gertler & Glewwe, 1990; Gertler & van der Gaag, 1990; Jimenez, 1986). Although no direct comparison of the two approaches seems to be available (see Selden & Wasylenko, 1995), it is not clear that which method is used makes a big difference. Under either method, public spending on primary and secondary education and on some types of health care units appears extremely progressive.

This paper focuses on another aspect of social public spending that incidence analysis has not handled explicitly: the inter-temporal or intergenerational nature of the effects of many of these expenditures. We will show that once these effects are recognized, it is no longer possible to assume – as is usually done in incidence analysis – that social expenditures are equivalent to cash transfers, food subsidies, and other programs of direct redistribution. Improving the quality of schooling or opening more schools is an investment in future generations and may have redistributive effects for these generations. But in the medium run, spending more on education may not increase the instantaneous well-being of the poorer elements of the population – and in fact is likely to worsen distribution initially. In this respect, educational expenditures clearly differ from a food subsidy or a cash transfer.

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