# The guidelines suggest the following<sup>10</sup> :

_General principles._ As indicated above the guidance on expenditure allocation has emphasized the principle of public economics i.e. to identify interventions that address market failures and inefficiencies.<sup>11</sup> Existing guidelines call for an assessment of the proper role of government, by clarifying private-public roles and evaluating market failure. Whether an expenditure is warranted should be determined by whether it would address a market failure or achieve an equity objective. There is typically an appraisal of the relative efficiency of various tools, government interventions, and expenditure policy options, for achieving particular objectives. This suggests distinguishing between financing a good or service and provision of that good or service.

_Menu of technical tools._ For evaluating expenditure options, guidelines provide a menu of available technical tools for steering policy choices, including cost-effectiveness analysis, multi-criteria analysis, service delivery surveys, expenditure tracking, and social cost-benefit analysis. To the extent that the guidelines discuss the equity objective it is to refer to established methodologies such as benefit incidence analysis.

What is the consensus on the usefulness of quantitative techniques for guiding resource allocation? Some guidelines are less confident about the value of existing empirical tools (for example, World Bank, 1993). Some sectors lend themselves more easily to economic cost-benefit analysis. For others, the criteria are less well defined. In theory the allocation of resources across programs should be based on the highest returns. In practice, a full economic analysis will not be possible except for a few sectors. Even within sectors that lend themselves to quantitative analysis, existing data may be inadequate for conducting a proper analysis. In this case, some guidelines suggest alternative resources for evaluating expenditure options, including the existing body of experience on how programs work in a country and experiences in other countries with similar characteristics. In practice, it may be optimistic to think that there exists a body of empirical work that quantifies all the critical parameters necessary for allocation decisions. There is then a large premium on professional judgment, based on expertise by sector and by country.

_Dynamic effects_ . To the extent that there is reference to the impact of public spending on the poor, existing guidelines typically do not distinguish the short versus the long term, nor the direct versus indirect impact on poverty. Most policy interventions have multiple effects on poverty—which can be distinguished in terms of whether the impacts are immediate or occur with a lag and whether they are direct or indirect (through economic growth). As discussed in section 1, many of the policy initiatives in the context of PRSPs and HIPC have focused on the direct effects and while spending on health or education would be expected to have a longer-term effect on poverty, the sequence and time lags have not been adequately explained. An important exception is a framework developed by Ferroni

> 10 A more detailed review of the recent literature appears in Appendix II.  See also Fozzard (2001).

> 11 The Bank’s PER guidelines note that the rationale for public intervention could be either market failure (public goods, externalities) or redistribution. If the former, it suggests obtaining quantitative estimates for the degree of market failure to supplement arguments based on first principles. If the rationale is redistribution, it recommends analysis of the incidence of public expenditures.

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