The government of Laos has gradually increased its public spending on education and health during the last decade, aimed to eradicate poverty by 2020 and to reach the MDGs by 2015. The purpose of this thesis is to examine to what extent an increase in public spending on education and health benefits the poor. The Lao Expenditure and Consumption Survey from 2002-03 round (known as LECS III) and 2007-08 round (LECS IV) are employed in this analysis. The thesis begins with an overview of national and social development policies and examination of the pattern of public social spending and the progress of social outcomes. Then, the thesis reviews the analytical concept and literature of average and marginal benefit incidence analysis. In particular, two different methods of marginal benefit incidence of public education and health spending based on marginal odds of participation (MOP) and marginal behavioural response (MBR) are discussed and distinguished. The MBR approach combines two effects: (a) benefits received by new program participants and (b) additional benefits received by existing program participants. The MOP approach captures effect (a) alone. This thesis contains four analytical core chapters that examine the marginal benefit incidence of an expansion in public education and health programs. In the first core chapter, the marginal benefit incidence of an expansion in average participation of education and health programs is estimated using the MOP method and a cross-sectional household dataset. The next other two analytical core chapters use the MBR method to estimate the marginal incidence of public education and health spending using the panel dataset. The last analytical core chapter proposes a method for understanding the difference between, and compares the findings of, marginal incidence estimated from the MOP and MBR methods. Based on the MOP method, at the margin, the poorest quintile of the population receives a larger share of total benefits from an increase in the size of primary education and primary health care program than the richest quintile while the marginal rates of lower secondary school education and hospital health care programs are high for the richer quintiles. In contrast, the findings of marginal incidence using the MBR approach suggest the reverse conclusion compared to the findings based on MOP method. A strong effect (b) dominates the estimates of MBR, resulting in a pro-rich marginal incidence for all education and health programs. The different findings of marginal benefit incidence analysis derived from the MOP and MBR approaches depends on two factors: (i) The MOP method does not measure effect (a) correctly, because it ignores changes in program participation caused by factors other than an increase in public spending; (ii) MOP approach ignores effect (b). The results of this study show that in the case of Laos, an increase in public spending on education and health does not target the poor as well as is expected. Additional benefits received by existing program participants outweigh the benefits received by new program participants
