Understanding Linkages Between Public Expenditure Analysis and Incentive/Disincentive Analysis in Policy Development

 
Linkages between the Public Expenditure
Linkages between the Public Expenditure
Analysis, Incentive/disincentive Analysis and
Analysis, Incentive/disincentive Analysis and
Performance and Development Indicators
Performance and Development Indicators
 
Incentive/disincentive Analysis
 
This analysis will not consider specific commodity
This analysis will not consider specific commodity
policies in estimating the indicators but examine
policies in estimating the indicators but examine
the impact of overall policy environment on
the impact of overall policy environment on
commodity markets.
commodity markets.
To explain and analyze the indicators, we use:
To explain and analyze the indicators, we use:
The policy review
The policy review
The PE analysis results
The PE analysis results
Performance and development indicators
Performance and development indicators
To demonstrate these linkages, we present few
To demonstrate these linkages, we present few
examples
examples
 
Impacts of Agricultural Price Policies
 
Agricultural price policies will affect producers, consumers, and
Agricultural price policies will affect producers, consumers, and
the government budget.
the government budget.
Depending on the type of policy, there will be transfers between
Depending on the type of policy, there will be transfers between
two or all three groups.
two or all three groups.
This means in all cases one group loses and at least one other
This means in all cases one group loses and at least one other
group benefits.
group benefits.
Commodity and sector-specific transfers will come from the PE
Commodity and sector-specific transfers will come from the PE
analysis
analysis
 
(Producer’s) Taxes and subsidies
 
For agricultural commodities such policies result in transfers
For agricultural commodities such policies result in transfers
between the public budget and producers and consumers.
between the public budget and producers and consumers.
Taxes transfer resources to the government, whereas subsidies
Taxes transfer resources to the government, whereas subsidies
transfer resources away from the government.
transfer resources away from the government.
Example of fixed producer price policy (higher than the
Example of fixed producer price policy (higher than the
international prices)
international prices)
: gain for producers; loss for consumers;
: gain for producers; loss for consumers;
increase in budget outlay that should be compensated by higher
increase in budget outlay that should be compensated by higher
taxes.
taxes.
Again, these transfers will appear as an output of the PE analysis
Again, these transfers will appear as an output of the PE analysis
 
Price stabilization policies
 
Such policies are adopted because of the high production variation
Such policies are adopted because of the high production variation
causing market prices to fluctuate substantially from one production cycle
causing market prices to fluctuate substantially from one production cycle
to the next.
to the next.
Policies adopted for this purpose, include trade restrictions,  price fixing,
Policies adopted for this purpose, include trade restrictions,  price fixing,
rationing, and storage schemes.
rationing, and storage schemes.
Crop insurance and futures and options markets are institutions that
Crop insurance and futures and options markets are institutions that
reduce the uncertainty of prices and income but these institutions are not
reduce the uncertainty of prices and income but these institutions are not
adopted by most developing countries.
adopted by most developing countries.
These needs to be clarified in the policy review
These needs to be clarified in the policy review
 
International trade restrictions
 
Taxes (tariffs) or quotas that limit either imports or exports
changes domestic price levels and has impacts on both
producers and consumers depending on the policy.
Import restrictions, for example, raise domestic prices above
relative to world prices, while export restrictions lower domestic
prices compare to world price.
These needs to emerge from the policy review
 
Factor price policies: traded and non-traded
 
These policies directly affect agricultural costs of production. The case of
These policies directly affect agricultural costs of production. The case of
traded inputs such as fertilizer use is straight forward i.e. domestic prices
traded inputs such as fertilizer use is straight forward i.e. domestic prices
are compared with international prices to estimate taxes/subsidies.
are compared with international prices to estimate taxes/subsidies.
The non-traded inputs include land, labor, and capital. Land and labor
The non-traded inputs include land, labor, and capital. Land and labor
costs, in general, account for a large share of the production costs of most
costs, in general, account for a large share of the production costs of most
agricultural commodities.
agricultural commodities.
Policies that can influence such costs include:
Policies that can influence such costs include:
land rental rates, minimum wage,
land rental rates, minimum wage,
interest rates, control of land use, and
interest rates, control of land use, and
water use/cost policies.
water use/cost policies.
These are especially relevant for the analysis of non-tradeables and needs
These are especially relevant for the analysis of non-tradeables and needs
to be described in the policy review.
to be described in the policy review.
 
Question and discussion
 
1.
Question: what are the key policy goals in Kenya?
2.
Question: what are the key constraints in agricultural production
in Kenya?
3.
Question: what are the key recent agricultural policy initiatives in
Kenya?
4.
 Question: what are the main policy tradeoffs?
 
Macro-economic Policies
 
 
Three categories of macro-economic policies affect agriculture:
Three categories of macro-economic policies affect agriculture:
Monetary policies
Monetary policies
Fiscal policies
Fiscal policies
Exchange rate policies
Exchange rate policies
 
Monetary and fiscal policies
 
These policies influence all sectors of the economy.  The key is their
These policies influence all sectors of the economy.  The key is their
impacts on the rate of price inflation (consumer or producer prices).
impacts on the rate of price inflation (consumer or producer prices).
Monetary policies leading to increase supply of money leads to faster
Monetary policies leading to increase supply of money leads to faster
demand growth for goods thus puts pressure on inflation.
demand growth for goods thus puts pressure on inflation.
Similarly, inflation increases when government deficits are covered by
Similarly, inflation increases when government deficits are covered by
expanding supply of money.
expanding supply of money.
These policies, when directed to agriculture, appear clearly from the
These policies, when directed to agriculture, appear clearly from the
PE analysis as increased spending in the sector for certain expenditure
PE analysis as increased spending in the sector for certain expenditure
and also in the performance and development indicators.
and also in the performance and development indicators.
 
Exchange rate policies
 
Exchange rates affect agricultural prices and costs of tradable goods
Exchange rates affect agricultural prices and costs of tradable goods
(imports and exports) and 
(imports and exports) and 
in the estimations of price incentives,
in the estimations of price incentives,
exchange rate misalignment needs to be estimated.
exchange rate misalignment needs to be estimated.
The exchange rate influences the price of an agricultural commodity
The exchange rate influences the price of an agricultural commodity
because the domestic price (in local currency) of a tradable
because the domestic price (in local currency) of a tradable
commodity is equal to the world price (in foreign currency) times
commodity is equal to the world price (in foreign currency) times
the exchange rate (the ratio of domestic to foreign currency).
the exchange rate (the ratio of domestic to foreign currency).
If relevant to the incentive/disincentive analysis, this needs to be
If relevant to the incentive/disincentive analysis, this needs to be
included in the policy review and development and performance
included in the policy review and development and performance
indicators.
indicators.
May result in higher cost of imported inputs subsidies and thus
May result in higher cost of imported inputs subsidies and thus
reflected in PE analysis if these inputs are subsidized
reflected in PE analysis if these inputs are subsidized
 
P
u
b
l
i
c
 
E
x
p
e
n
d
i
t
u
r
e
 
P
o
l
i
c
i
e
s
 
I
n
f
l
u
e
n
c
i
n
g
 
A
g
r
i
c
u
l
t
u
r
e
 
Government budgetary resources can be spent on agriculture
directly
 or 
indirectly
 to improve incomes, increase productivity
and to reduce transaction costs.
The most common direct expenditures include production and
input subsidies, direct payments, investments in infrastructure
(on and off farm), investment in human capital (agricultural
education and training, etc.), and in agriculture research and
technology (and extension) while indirect expenditures include
rural development measures (rural infrastructure, education,
health).
 
P
u
b
l
i
c
 
e
x
p
e
n
d
i
t
u
r
e
s
 
o
n
 
i
n
p
u
t
 
s
u
b
s
i
d
i
e
s
 
Input subsidies are implemented to enable farmers to use inputs
Input subsidies are implemented to enable farmers to use inputs
and technologies that are known to be effective and intend to
and technologies that are known to be effective and intend to
address in relatively simple manner otherwise difficult problems
address in relatively simple manner otherwise difficult problems
of developing input markets and associated financial services to
of developing input markets and associated financial services to
small farmers.
small farmers.
But inputs subsidies treat the symptoms rather than origins of
But inputs subsidies treat the symptoms rather than origins of
market failures, distort resource allocation and are often costly
market failures, distort resource allocation and are often costly
and difficult to sustain without cutting expenditures on
and difficult to sustain without cutting expenditures on
important public goods.
important public goods.
 
Such investments benefit both producers and consumers
Such investments benefit both producers and consumers
(reflected in the PE analysis).
(reflected in the PE analysis).
These investments are very important for production growth
These investments are very important for production growth
shifting the supply curve rightward
shifting the supply curve rightward
They tend to have strong long-term impacts although difficult to
They tend to have strong long-term impacts although difficult to
measure in terms of return to specific commodity in a given year.
measure in terms of return to specific commodity in a given year.
Lower marginal factor costs resulting from technological change
Lower marginal factor costs resulting from technological change
leads to low domestic prices.
leads to low domestic prices.
Therefore, some commodities may become cheaper than the
Therefore, some commodities may become cheaper than the
price parity
price parity
 
P
u
b
l
i
c
 
i
n
v
e
s
t
m
e
n
t
s
 
i
n
 
r
e
s
e
a
r
c
h
 
a
n
d
 
t
e
c
h
n
o
l
o
g
y
 
(
R
&
D
)
 
P
u
b
l
i
c
 
i
n
v
e
s
t
m
e
n
t
s
 
i
n
 
i
n
f
r
a
s
t
r
u
c
t
u
r
e
 
Infrastructure investment improves returns to producers or
Infrastructure investment improves returns to producers or
lowers costs of production.
lowers costs of production.
Infrastructure investment includes investment in roads, ports,
Infrastructure investment includes investment in roads, ports,
and irrigation networks (and can be on and off farm). Such
and irrigation networks (and can be on and off farm). Such
investments tend to be targeted and benefit mostly the
investments tend to be targeted and benefit mostly the
producers and consumers who live in those regions.
producers and consumers who live in those regions.
While clearly reflected in the PE analysis and supported by
While clearly reflected in the PE analysis and supported by
development indicators, these are taken into account in
development indicators, these are taken into account in
incentive/disincentive analysis through access costs at various
incentive/disincentive analysis through access costs at various
points in the value chain.
points in the value chain.
 
These include wide variations of policies and include investment to
These include wide variations of policies and include investment to
improve the skill levels and health of producers and consumers.
improve the skill levels and health of producers and consumers.
Investments in formal schools, training and extension centers,
Investments in formal schools, training and extension centers,
public health facilities, and clinics and hospitals are examples of
public health facilities, and clinics and hospitals are examples of
such investment.
such investment.
These investments are very important for long-term development,
These investments are very important for long-term development,
but their short-terms impacts  on prices difficult to measure.
but their short-terms impacts  on prices difficult to measure.
These expenditures are taken into account in the PE analysis and
These expenditures are taken into account in the PE analysis and
many development indicators including the UNDP human capital
many development indicators including the UNDP human capital
index.
index.
 
P
u
b
l
i
c
 
i
n
v
e
s
t
m
e
n
t
s
 
i
n
 
h
u
m
a
n
 
c
a
p
i
t
a
l
 
Discussion on Policy Tradeoffs
 
Often gains for one policy goal result in losses for another
Often gains for one policy goal result in losses for another
(example of price subsidy and budget deficit or consumer and
(example of price subsidy and budget deficit or consumer and
producer price subsidy).
producer price subsidy).
Assigning weights to objectives of government policies are value
Assigning weights to objectives of government policies are value
judgments but the goal of analysis is to identify the appropriate
judgments but the goal of analysis is to identify the appropriate
tradeoffs between policies.
tradeoffs between policies.
Quantitative analyses are critical for policymakers to examine the
Quantitative analyses are critical for policymakers to examine the
impacts of their policies (producers, consumers, budget,
impacts of their policies (producers, consumers, budget,
efficiency, equity, etc.).
efficiency, equity, etc.).
 
 
 
        
18
 
Part 1: Background
Description of the economy, and the agricultural economy
F&A policy environment & political economy
Part 2: Findings based on in-depth analysis of agricultural and food policies and
public investment in agriculture
Analysis of price incentives and disincentives in agriculture and degree of market
development.
Analysis of public expenditures and aid directed to agriculture
Analysis of development and performance indicators and linkages
Part 4: Specific policy issues of interest to the country
Conclusions
Policy implications and elements for an evidence-based policy dialogue
Lessons learned and way forward
 
Outlines of the country report
 
Update and examine the data in the list with data from
Update and examine the data in the list with data from
national data sources (particularly diet composition ) for the
national data sources (particularly diet composition ) for the
2006-2010.
2006-2010.
Are the lists the same? How can we explain differences?
Are the lists the same? How can we explain differences?
Repeat the methodology for the commodity selection
Repeat the methodology for the commodity selection
Does  the country want to include a specific commodity? why?
Does  the country want to include a specific commodity? why?
Add the commodities of national interests to the list and
Add the commodities of national interests to the list and
classify the commodities according to tradability
classify the commodities according to tradability
 
Finalizing commodity selection
Finalizing commodity selection
OUTPUT:
Final product list
 
Estimated time: 2 weeks.
 
Data Management
Data Management
 
For the import substitutes and exports, review value
For the import substitutes and exports, review value
chains (marketing channels) from available studies or ad
chains (marketing channels) from available studies or ad
hoc surveys including estimates of access costs and
hoc surveys including estimates of access costs and
determine the relevant point of competition
determine the relevant point of competition
For each commodity, determine the relevant markets or
For each commodity, determine the relevant markets or
production region when multiple markets/production
production region when multiple markets/production
regions exist for the commodity.
regions exist for the commodity.
Using the data template, collect and document the data
Using the data template, collect and document the data
required for the estimation of the price
required for the estimation of the price
incentive/disincentive.
incentive/disincentive.
Determine whether there are quality/quantity
Determine whether there are quality/quantity
differences between domestic and foreign commodities
differences between domestic and foreign commodities
and determine conversion factors  (literature).
and determine conversion factors  (literature).
 
Incentive/disincentive analysis
Incentive/disincentive analysis
 
Using the data template provided estimate the
Using the data template provided estimate the
first layer indicators.
first layer indicators.
Consulting the literature, determine and
Consulting the literature, determine and
document if adjustments needs to be performed
document if adjustments needs to be performed
on:
on:
Exchange rate during the period of analysis
Exchange rate during the period of analysis
Access costs
Access costs
If so, determine the alternative relevant
If so, determine the alternative relevant
adjustments and perform the second layer
adjustments and perform the second layer
analysis.
analysis.
Slide Note
Embed
Share

This article explores the interconnections between public expenditure analysis, incentive/disincentive analysis, and performance and development indicators in the context of agricultural price policies. It examines how policy environments impact commodity markets and different stakeholder groups, such as producers, consumers, and government budgets. Through examples and visual illustrations, it highlights the importance of considering various factors like taxes, subsidies, international trade restrictions, and factor price policies in policy formulation and review.


Uploaded on Aug 04, 2024 | 3 Views


Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

E N D

Presentation Transcript


  1. Linkages between the Public Expenditure Analysis, Incentive/disincentive Analysis and Performance and Development Indicators Bill Melinda Gates Foundation

  2. Incentive/disincentive Analysis This analysis will not consider specific commodity policies in estimating the indicators but examine the impact of overall policy environment on commodity markets. To explain and analyze the indicators, we use: The policy review The PE analysis results Performance and development indicators To demonstrate these linkages, we present few examples

  3. Impacts of Agricultural Price Policies Agricultural price policies will affect producers, consumers, and the government budget. Depending on the type of policy, there will be transfers between two or all three groups. This means in all cases one group loses and at least one other group benefits. Commodity and sector-specific transfers will come from the PE analysis Bill Melinda Gates Foundation

  4. (Producers) Taxes and subsidies For agricultural commodities such policies result in transfers between the public budget and producers and consumers. Taxes transfer resources to the government, whereas subsidies transfer resources away from the government. Example of fixed producer price policy (higher than the international prices): gain for producers; loss for consumers; increase in budget outlay that should be compensated by higher taxes. Again, these transfers will appear as an output of the PE analysis Bill Melinda Gates Foundation

  5. International trade restrictions Taxes (tariffs) or quotas that limit either imports or exports changes domestic price levels and has impacts on both producers and consumers depending on the policy. Import restrictions, for example, raise domestic prices above relative to world prices, while export restrictions lower domestic prices compare to world price. These needs to emerge from the policy review Bill Melinda Gates Foundation

  6. Factor price policies: traded and non-traded These policies directly affect agricultural costs of production. The case of traded inputs such as fertilizer use is straight forward i.e. domestic prices are compared with international prices to estimate taxes/subsidies. The non-traded inputs include land, labor, and capital. Land and labor costs, in general, account for a large share of the production costs of most agricultural commodities. Policies that can influence such costs include: land rental rates, minimum wage, interest rates, control of land use, and water use/cost policies. These are especially relevant for the analysis of non-tradeables and needs to be described in the policy review. Bill Melinda Gates Foundation

  7. Question and discussion 1. Question: what are the key policy goals in Kenya? 2. Question: what are the key constraints in agricultural production in Kenya? 3. Question: what are the key recent agricultural policy initiatives in Kenya? 4. Question: what are the main policy tradeoffs? Bill Melinda Gates Foundation

  8. Macro-economic Policies Three categories of macro-economic policies affect agriculture: Monetary policies Fiscal policies Exchange rate policies Bill Melinda Gates Foundation

  9. Monetary and fiscal policies These policies influence all sectors of the economy. The key is their impacts on the rate of price inflation (consumer or producer prices). Monetary policies leading to increase supply of money leads to faster demand growth for goods thus puts pressure on inflation. Similarly, inflation increases when government deficits are covered by expanding supply of money. These policies, when directed to agriculture, appear clearly from the PE analysis as increased spending in the sector for certain expenditure and also in the performance and development indicators. Bill Melinda Gates Foundation

  10. Exchange rate policies Exchange rates affect agricultural prices and costs of tradable goods (imports and exports) and in the estimations of price incentives, exchange rate misalignment needs to be estimated. The exchange rate influences the price of an agricultural commodity because the domestic price (in local currency) of a tradable commodity is equal to the world price (in foreign currency) times the exchange rate (the ratio of domestic to foreign currency). If relevant to the incentive/disincentive analysis, this needs to be included in the policy review and development and performance indicators. May result in higher cost of imported inputs subsidies and thus reflected in PE analysis if these inputs are subsidized Bill Melinda Gates Foundation

  11. Public Expenditure Policies Influencing Agriculture Government budgetary resources can be spent on agriculture directly or indirectly to improve incomes, increase productivity and to reduce transaction costs. The most common direct expenditures include production and input subsidies, direct payments, investments in infrastructure (on and off farm), investment in human capital (agricultural education and training, etc.), and in agriculture research and technology (and extension) while indirect expenditures include rural development measures (rural infrastructure, education, health). Bill Melinda Gates Foundation

  12. Public expenditures on input subsidies Input subsidies are implemented to enable farmers to use inputs and technologies that are known to be effective and intend to address in relatively simple manner otherwise difficult problems of developing input markets and associated financial services to small farmers. But inputs subsidies treat the symptoms rather than origins of market failures, distort resource allocation and are often costly and difficult to sustain without cutting expenditures on important public goods. Bill Melinda Gates Foundation

  13. Public investments in research and technology (R&D) Such investments benefit both producers and consumers (reflected in the PE analysis). These investments are very important for production growth shifting the supply curve rightward They tend to have strong long-term impacts although difficult to measure in terms of return to specific commodity in a given year. Lower marginal factor costs resulting from technological change leads to low domestic prices. Therefore, some commodities may become cheaper than the price parity Bill Melinda Gates Foundation

  14. Public investments in infrastructure Infrastructure investment improves returns to producers or lowers costs of production. Infrastructure investment includes investment in roads, ports, and irrigation networks (and can be on and off farm). Such investments tend to be targeted and benefit mostly the producers and consumers who live in those regions. While clearly reflected in the PE analysis and supported by development indicators, these are taken into account in incentive/disincentive analysis through access costs at various points in the value chain. Bill Melinda Gates Foundation

  15. Public investments in human capital These include wide variations of policies and include investment to improve the skill levels and health of producers and consumers. Investments in formal schools, training and extension centers, public health facilities, and clinics and hospitals are examples of such investment. These investments are very important for long-term development, but their short-terms impacts on prices difficult to measure. These expenditures are taken into account in the PE analysis and many development indicators including the UNDP human capital index. Bill Melinda Gates Foundation

  16. Discussion on Policy Tradeoffs Often gains for one policy goal result in losses for another (example of price subsidy and budget deficit or consumer and producer price subsidy). Assigning weights to objectives of government policies are value judgments but the goal of analysis is to identify the appropriate tradeoffs between policies. Quantitative analyses are critical for policymakers to examine the impacts of their policies (producers, consumers, budget, efficiency, equity, etc.). Bill Melinda Gates Foundation

  17. Outlines of the country report Part 1: Background Description of the economy, and the agricultural economy F&A policy environment & political economy Part 2: Findings based on in-depth analysis of agricultural and food policies and public investment in agriculture Analysis of price incentives and disincentives in agriculture and degree of market development. Analysis of public expenditures and aid directed to agriculture Analysis of development and performance indicators and linkages Part 4: Specific policy issues of interest to the country Conclusions Policy implications and elements for an evidence-based policy dialogue Lessons learned and way forward 18

  18. THE STEPS AHEAD

  19. Finalizing commodity selection Update and examine the data in the list with data from national data sources (particularly diet composition ) for the 2006-2010. Are the lists the same? How can we explain differences? Repeat the methodology for the commodity selection Does the country want to include a specific commodity? why? Add the commodities of national interests to the list and classify the commodities according to tradability OUTPUT: Final product list Estimated time: 2 weeks. Bill Melinda Gates Foundation

  20. Data Management For the import substitutes and exports, review value chains (marketing channels) from available studies or ad hoc surveys including estimates of access costs and determine the relevant point of competition For each commodity, determine the relevant markets or production region when multiple markets/production regions exist for the commodity. Using the data template, collect and document the data required for the estimation of the price incentive/disincentive. Determine whether there are quality/quantity differences between domestic and foreign commodities and determine conversion factors (literature).

  21. Incentive/disincentive analysis Using the data template provided estimate the first layer indicators. Consulting the literature, determine and document if adjustments needs to be performed on: Exchange rate during the period of analysis Access costs If so, determine the alternative relevant adjustments and perform the second layer analysis.

  22. LETS BEGIN Bill Melinda Gates Foundation

Related


More Related Content

giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#