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Analytical techniques

Efficiency Analysis

This section presents analytical papers on budget efficiency analysis in a variety of policy areas. While none of the papers presented in this section used a BOOST database, the techniques used in them can be extrapolated and replicated using BOOST. The objective of this section is, therefore, to encourage the user to approach policy analysis with an innovative approach taking advantage of all the tools at hand.

This paper quantifies the inefficiency of public health expenditure and the associated potential gains for emerging and developing economies using a stochastic frontier model that controls for the socioeconomic determinants of health, and provides country-specific estimates. The results suggest that African economies have the lowest efficiency. At current spending levels, they could boost life expectancy up to about five years if they followed best practices.

This report is intended to support the analysis and implementation of reforms aimed at a strengthening of the intergovernmental system in Colombia. In mid-2007 congress approved a legislative act as constitutional amendment that increases the level of the main transfer to sub-national governments, the General System of Transfers (SGP). However an adjustment of the regulations and institutional arrangements within the sectors is still pending. The report is intended to provide empirical evidence and technical inputs for a design of these complementary measures that are required. It will focus on examining how efficient sub-national governments are in service delivery within the existing intergovernmental arrangements and incentive framework. It will also analyze the underlying causes of low performance and suggest options for the government to address this challenge. The emphasis is on three sectors: education and health, which are both financed primarily by the SGP; and the road sector, which is financed outside the SGP. This focus will make evident the different types of intergovernmental management systems and the implications for efficiency.

This paper attempts to measure efficiency and has two major parts. The first one estimates efficiency as the distance between observed input-output combinations and an efficiency frontier (defined as the maximum attainable output for a given level of inputs). This frontier is estimated for several health and education output indicators by means of the Free Disposable Hull (FDH) and Data Envelopment Analysis (DEA) techniques. Both input-inefficiency (excess input consumption to achieve a level of output) and output-inefficiency (output shortfall for a given level of inputs) are scored in a sample of 140 countries using data from 1996 to 2002. The second part of the paper seeks to verify empirical regularities of the cross-country variation in efficiency.

This study will present the stochastic frontier methodology and revisit the World Bank data while employing this alternative set of methods.  The first chapter of the presentation describes the stochastic frontier methodology.  Then , the methods will be illustrated in two applications, Christensen and Greene’s (1976) data on electricity production, which is a standard platform for studying the stochastic frontier model and second, to a previously examined data set from the World Health Organization on health care and education attainment, allowing for both measured and unmeasured heterogeneity (cross country differences).  In our second chapter, we will apply the techniques developed to the World Bank data on health care and education.  This section will illustrate a variety of computations based on the stochastic frontier methodology.  The stochastic frontier production model has provided the standard platform for single output analysis of technical inefficiency in most studies. 

This report examines the efficiency of public expenditures for education and health services in developing countries. Two datasets are analyzed: the first allows cross-country comparisons, using national-level data; the second permits comparisons across municipalities in a single country.

This research outlines the policy context, objectives, and methodology practiced, to then focus on the extent to which municipalities benefited from efforts designed to provide additional resources for education. On pp 53-57 the article used the Data Envelopment Analysis (DAE) technique to use the empirical data from the municipalities and determine the efficiency in the use of resources and the impact on education.

Equity analysis: Documents on Benefit Incidence Analysis

This Stata program includes a module to perform Benefit Incidence Analysis.
The main purpose of this project is to produce a comprehensive package of Stata modules to help analyze the distribution of living standards. It is hoped that this will be useful for measurement as well as for policy purposes.

Benefit incidence analysis (BIA) considers who (in terms of socio-economic groups) receive what benefit from using health services. While traditionally BIA has focused on only publicly funded health services, to assess whether or not public subsidies are ‘pro-poor’, the same methodological approach can be used to assess how well the overall health system is performing in terms of the distribution of service benefits.

The aim of this guide is to provide researchers and analysts with a step-by-step practical guide to the measurement of a variety of aspects of health equity. Chapter 14 (pp.165-175): Who Benefits from Health Sector Subsidies? provides a detailed Benefit Incidence Analysis on health.

The paper demonstrates the usefulness of BIA in two dimensions. First, the paper finds, among other things, that overall education and health spending are poorly targeted; benefits from primary education and primary health care go disproportionately to the middle class, particularly in sub-Saharan Africa, HIPCs and transition economies; but targeting has improved in the 1990s. Second, simple measures of association show that countries with a more pro-poor incidence of education and health spending tend to have better education and health outcomes, good governance, high per capita income, and wider accessibility to information.

Practical Applications

This paper uses a benefit incidence approach to estimate who gains from these services, both on average and at the margin, using data from the 2005/06 Kenya Integrated Household Budget Survey (KIHBS).

The provides a statistical software package for free to perform different types of frontier and efficiency analysis, as well as detailed guidelines and working papers on the topic.

A Public Expenditure Review (PER) is a key diagnostics instrument used to evaluate the effectiveness of public finances. Within the World Bank, PERs continue to be among the most critical and commonly used corporate tools to analyze and engage on the quality of public expenditure and financial management systems in client countries, serving as the main instruments guiding and influencing policy dialogues around reforms covering the full public finance cycle and help mainstream public finance diagnostics in sectoral operations.

A PER typically analyzes government expenditures over a period of years to assess their consistency with policy priorities, and what results were achieved. A PER may analyze government-wide expenditures or may focus on a particular sector as Health Care, Education, or Infrastructure.

Many governments have made strides to include PERs as part of their budget planning cycle. Whether across the whole of government or focusing on a single sector, by examining how public expenditure was allocated and managed, governments and donors are better able to assess not only the impact of their investment, but also the effectiveness of budget planning and execution. PERs help diagnose spending problems and help countries develop more effective and transparent budget allocations. The objective is to establish a baseline understanding of key fiscal management and policy challenges, highlight priority reform areas for policymakers, and set the agenda for the next phase of budgetary planning.

To access all PERs, click here. To see PERs dedicated to education sector, .