The Distributional Effects of Public Expenditure: Update and Overview

IMF Working Papers, August 1, 1995

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It is commonly agreed that economic policies, including budgetary policies, can have potentially strong distributional effects.
Traditional economic analysis held that economic policies affected the income distribution primarily through their impact on the rate of growth.
More recently, it has come to be recognized that qualitative aspects of economic growth are probably more important than the rate of growth itself.
Recent research has confirmed the potential role of expenditure policies as a redistributive tool, and has shown that redistribution does not necessarily have to come at the expense of economic growth and efficiency.
Although there are substantial analytical and technical problems in designing equitable and cost-effective public expenditure programs, unfavorable distributional outcomes of these programs can usually be traced more to political and institutional pressures than to purely technical factors.

Expenditure policies can serve as effective redistributive tools.
Qualitative aspects of economic growth may matter more for distributional outcomes than the rate of growth.
Redistribution need not be incompatible with economic growth and efficiency.
Design challenges for public expenditure programs are both analytical and technical, but political and institutional pressures are often the primary drivers of unfavorable distributional outcomes.

Focus on the qualitative composition of growth and public spending, not solely on growth rates, to influence distributional outcomes.
Design public expenditure programs with attention to both equity and cost-effectiveness.
Address political and institutional constraints that distort the distributional impact of expenditure programs.
Use expenditure incidence analysis and household income/expenditure data to inform policy design.

Subjects: Consumption, Expenditure, Income distribution, Income inequality, National accounts, Personal income, Poverty
Keywords: debated policy topic, distribution data, East Asia, economic growth, expenditure incidence, expenditure policy, expenditure program, expenditure reform, household expenditure data, household income, income, Income distribution, income distribution data, Income inequality, income transfer, Personal income, policy, public expenditure, public expenditure area, public expenditure program, WP