**Polley Research**

# **Pubic Economics**

# WPS 1015

- This paper a product of the Public Economics Division, Country Economics Department<sup>-</sup> is part of a larger effort in the departmen **t** o study the impact of public expenditure on household<sup>welfare, especially</sup> of the poor. Copies of the paper are available free from the World Bank, 1818<sup>H Street NW, Washington,</sup> DC 20433. Please contact Carlina Jones, room N10-063, extension 37754<sup>(November 1992,</sup><sup>**_55_**pages).</sup>

As interesting and difficult as it is to allocate tax burdens to individuals, the profession knows even less about allocating benefits. Selden and Wasylenko 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 generalequilibrium 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, Selden and Wasylenko 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.

Selden and Wasylenko 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: ment efficiency, and the relationship between marginal and total benefits. And those studies are often not designed to identify which types of pub!ic services benefit the poor. Researchers should focus more on providing benefit incidence studies on specific government funcdons or programs that can help policymakers reach conclusions about proposed reallocations of resources among govermment 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 aniual cost measures for services need to be developed, particularly 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.

*Aggregate results based on the zero-government counterfactual rely on strong assumptions about fixed reladve prices and incomes, govem-

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