Evaluating Public Spending: A Framework for Public Expenditure Reviews

Abstract

This paper presents a framework for evaluating the level and composition of public expenditures, illustrated by sectoral and country examples. It emphasizes six elements which should be an integral part of an ongoing exercise to evaluate public spending. First, the aggregate level of public spending and deficit of the consolidated public sector must be consistent with the macroeconomic framework. Second, aggregate spending should be allocated to programs within and across sectors to maximize social welfare, including the impact on the poor. Third, the role of the government versus the private sector ought to be a principal criterion governing the choice of programs for public financing and provision; public expenditures should complement rather than substitute for private sector activities. Fourth, the impact of key programs on the poor, including their incidence and total costs, should be analyzed. Fifth, the input mix, or the allocations for capital and recurrent expenditures, should be analyzed in an integrated manner within programs and sectors. Finally, budgetary institutions should be analyzed to ensure that the underlying incentive structure contributes to aggregate fiscal discipline, allocative efficiency and equity in the composition of spending, and technical efficiency in the use of budgeted resources.

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