Press Release – A failure to count public amenities in household income leads to the mis-measurement of poverty

The provision of basic public amenities affects households’ consumption decisions, yet the value of these free goods is not unaccounted for in official poverty estimates. The fact that anti-poverty schemes are regionally allocated based solely on private consumption figures means that they risk being seriously mis-targeted.

The Bihar-based research, presented by Rohini Somanathan (Delhi School of Economics) at the International Growth Centre’s South Asia Growth Conference 2013 and co-authored with Anders Kjelsrud (University of Oslo and ESOP) finds that public service provision, including schooling, healthcare and subsidised food grains through the Public Distribution System, is often worse in poorer areas.

While the research finds that accounting for the provision of public services results in a fall in overall poverty because the poor use many of these services more than richer households, it also leads to greater spatial dispersion in poverty rates because of poor regional targeting of public spending.

When examining the composition of households using public schools in Bihar, the authors find that households do respond to the quality of public schools and children are more likely to be enrolled in private institutions when faced with low quality public schools.

Background

While publicly provided goods and in-kind transfers vary substantially across Indian villages, they have never been explicitly incorporated in official poverty measures. Since public provision influences household consumption decisions and levels, poverty numbers based solely on private expenditure data are necessarily biased. The quality of public services is an important factor in maintaining the high rates of growth that Bihar has experienced over the last few years.

Key findings

  • Measures of poverty in Bihar and other Indian states are inaccurate because they don’t include the value of public services or in-kind transfers and only include private consumption data.
  • Public amenities result in a fall in overall poverty but increased regional inequality since public provision is sometimes worse in poorer areas.
  • The main problem with schooling in Bihar is not primarily access to government schools but rather their poor quality.

Policy implications

Better measures of poverty mean that public services can be more accurately targeted to the poorest households. Anti-poverty schemes risk being seriously mis-targeted when the allocation relies on poverty measures based solely on private consumption data. The distribution of public amenities has implications for the potential for growth, and the lack of provision in some of the poorest areas could affect the overall growth performance of Bihar.

Research aim

The aim of the research was to create more accurate measures of poverty and inequality that better incorporate benefits from unpaid public services into consumption data.

Research method

The analysis is based on primary data collected via survey from 40 villages in Bihar in 2012. Three questionnaires were used as the basis of subsequent statistical analysis: (1) a household questionnaire similar to that used by the NSS, (2) a village questionnaire to obtain village-level demographics and infrastructure, and (3) an amenity survey which collected information on the most frequently used private and public school and health facility for each village.

Researchers

Rohini Somanathan is Professor of Economics at the Delhi School of Economics and is the Lead Academic for the IGC India-Bihar programme. Her research interests lie at the intersection of development economics, public economics and political economy.

Anders Kjelsrud is a PhD candidate in the Department of Economics at the University of Oslo. His main research interests are development economics and international economics.

 

This statement was issued at the South Asia Growth Conference 2013, held in New Delhi, India.