Efficiency and equity in social spending : how and why governments misbehave

Abstract

A hot issue in development economics is how much to rely on user charges and private organizations to provide such social services as health and education. Most analysts arguing on either side of the issue assume that any policy decisions involve a tradeoff between equity and efficiency. The authors argument is that in many settings in the developing world that assumption is incorrect. In many countries, they argue, the current situation is inefficient partly because it is inequitable; more equitable social spending would be more efficient in reducing mortality, for example, or in maximizing social returns to spending on education. The model they use assumes that the degree of efficiency and redistribution is endogenous, so the real problem is : how does one break into the chain of causes and bring about a new, more efficient and equitable equilibrium? The authors argue for a policy that concentrates government funding on public goods and encourages the market to do what it does best : fund and produce private goods. They recommend ten political strategies for reallocating government funds in the public sector in a way that maximizes the benefits of targeting, reduces costs, and minimizes resistance to change and the withdrawal of the middle and upper classes'political and tax support.Economic Theory&Research,Environmental Economics&Policies,Health Monitoring&Evaluation,Public Sector Economics&Finance,Health Economics&Finance