Public Programs Pare Poverty: Evidence from Chile

This study examines the effect of government health care and education programs on the poor in Chile from 2000 to 2006. Results are obtained from a country-wide provincial level panel data-set with information on poverty and indigence head-count ratios, measures on the severity of poverty as captured by the Foster-Greer-Thorbecke P2 statistic, per capita public expenditures on health and education, as well as other variables that are thought to influence well-being. We use fixed-effects techniques to correct for time-invariant province-specific characteristics that may affect program placement. Our analysis demonstrates that per capita public health and education expenditures significantly reduce the incidence of poverty and indigence in Chile. In particular, for a 10,000 pesos (about $23) increase in provincial per capita health spending, the poverty head-count ratio decreases by 0.48%. Per capita education expenditures are particularly important to reducing the severity of poverty. Our results indicate that for a 10,000 pesos increase in education spending, the severity of poverty declines by as much as 1.53%. Furthermore, we provide evidence that public spending in Chile is non-random. In particular, government education expenditures may be allocated in keeping with compensatory motives.