Analyzing the Incidence of Public Spending

This chapter is about public spending, and how to assess who benefits from it. It describes benefit incidence analysis, highlights good practice, and provides some guidance on how to estimate and interpret its results. Public subsidies are justified on a number of grounds. Market failure and the presence of pure public goods call for government intervention on efficiency grounds. But the case for public subsidies is also based on equity considerations. Helping the poor escape from poverty has traditionally been considered a responsibility of the state. The provision of basic services for the poor is one of the most effective instruments governments have to achieve this objective. But it is not the only one. What follows is based on the following premises: