Summary

Does higher public expenditure buy better results in social outcomes? It is commonly recognized that reducing unproductive expenditures, increasing social expenditure, and improving its efficiency and quality are critical elements of countries that have achieved macroeconomic stability and have decided to pursue poverty reduction actively. In Peru, there have been little empirical efforts to evaluate the evidence supporting such a common belief and assess the efficiency in the use of such increased resources. Leakages and poor targeting are two critical shortcomings that affect the efficiency of pro-poor expenditure. On the one hand, a highly decentralized budget execution brings the possibility of significant leakages in the flow of resources toward the final beneficiaries of social programs. Leaks may undermine social policy by their ability to prevent a critical input—public expenditure— to produce desired social outcomes. The introduction of an innovative tool—a Public Expenditure Tracking Survey (PETS)—reveals major leakages in revenue transfer mechanisms toward local governments and downwards, in particular for the Vaso de Leche program, the most important food supplementary program in Peru. The same national survey indicates that the most significant leaks are not at the origins of the chain, between th