Accounting for Public Services in Distributive Analysis1

This chapter discusses the major steps and issues related to the inclusion of public services in inequality research. Empirically, it investigates how the income distribution in countries changes when the value of publicly provided services to households is included. The authors consider five major categories of public services: education, health care, social housing, childcare and elderly care. On average across OECD countries, spending on these ‘in-kind’ benefits accounts for about 13% of GDP, slightly more than the spending on cash transfers – but with considerable cross-country variation. Broadening the income concept to account for in-kind benefits considerably increases households’ economic resources. But public services also contribute to reducing income inequality, by between one-fifth and one-third depending on the inequality measure. This chapter suggests that publicly provided services fulfil an important direct redistributive role in OECD countries.