Benefits on the margin : observations on marginal benefit incidence

Broadly stated, this analysis, which is commonly used by the World Bank, addresses the question "How are the benefits of government expenditures on X distributed across the population?" One of the most common criticisms of the standard benefit incidence method is that its description of average participation rates is not necessarily useful in guiding marginal changes in public expenditure policy from the status quo. This paper considers a variety of options for analyzing the marginal benefit incidence of policy changes. A key conceptual point is that, despite the fact that all methods measure marginal incidence, they do not in fact measure the same thing, nor are they intended to do so. There are many possible policy changes, and thus many margins of interest. Each method captures one of these, and so is at least potentially of interest for some analyses, while potentially inappropriate for others. Empirically, the precision of the methods differs substantially, with those relying on differentiated data or aggregations of households into groups yielding standard errors that are quite large relative to the estimated shares.