Middle sector households benefit little from social spending
The importance of the public sector to the well-being of the disadvantaged is evidenced by the fact that, on average, public benefits make up about 50% of total resources for low-income households in both the countries we are considering. Middle-sector families benefit much less from social programmes. Access to public education and health-care services by the middle sectors, for example, is demonstrably much more limited (Figure 4.10).
The provision of public support for basic services is strongly affected by the income position of families. More affluent families, who can afford private substitutes, have little incentive to use public services where they have a poor perception of their quality. As Chapter 3 amply demonstrated, this is certainly the case in education. Therefore, middle-sector families – who are precisely the group with both the means and incentives to see their children educated – are likely to favour private provision. The same may be true in health care. This highlights a limitation of the tax-benefit analysis which implicitly assumes that public services are of similar quality to the private sector. If the education and health-care services provided by the public sector are of low quality (services that are mostly received by the disadvantaged and middle sectors), then the benefits will be valued less.
Figure 4.10. Effective receipt of benefits by household income deciles (weighted average, percentage of mean disposable income, 2006)
Splitting out the components finds that the value of public education is the biggest single contributor in the tax-benefit calculation for disadvantaged families
Health care is the second largest programme in terms of effect. Health-care expenditure presents a relatively progressive pattern in Chile and Mexico and accounts for 19.0% and 11.6% of disadvantaged households’ disposable income, respectively. The equivalent figures for the middle sectors are 6.1% in Chile and 6.3% in Mexico.
As is to be expected, the bulk of cash transfers go to disadvantaged families – for whom they represent a substantial proportion of disposable income. For the middle sectors, cash transfers play a less significant role given that households in this group are typically sufficiently well-off not to qualify for most types of such assistance. While the effect is positive, it is very small.
20 Educational spending then displays a progressive pattern as incomes decrease. Public education to low-income families is worth an estimated 8.1% of mean disposable income in Chile compared with 4.7% for the middle sectors; and 12.6% in Mexico against 9.8% for the middle sectors. Expressed as a proportion of average income within the relevant deciles, the contrast is even starker: a boost to family budgets of 29.5% for low-income families in Chile against 6.4% for their middle-sector compatriots; and 33.3% against 11.4% in Mexico.