Distributional Constraints in Public Expenditure Planning

Distributional aspects are of primary importance in the design of many of our largest public programs. National health insurance, low-income housing subsidies, grants for higher education and payments for income maintenance all emphasize the use of public expenditure to alter the distribution of real resources among income classes. The traditional cost-benefit approach, with its focus on the efficiency of resource use, is inadequate for dealing with such programs. Moreover, the basic problem of choice in these programs is not the selection of one of several mutually exclusive projects but the design of optimal income-related schedules of benefits and charges. The current paper defines this problem more specifically and suggests a linear programming formulation for its solution. An application to the design of a national health insurance program is then presented.