Hidden subsidies

Abstract

The objective of this paper is to quantify the magnitude of subsidies provided from budgetary sources for major economic and social services including irrigation, roads, education, health, and water supply and sanitation. This exercise is complicated by the limited availability of data, especially on costs of provision. The research demonstrates that the budgetary subsidy on major economic and social services in Pakistan is large and there is less of it for 'merit goods'. Therefore, considerable scope exists for improving cost recovery and raising the level of non-tax revenues, with much of the benefit going to provincial governments. It needs to be recognised that resource mobilisation efforts, which have hitherto been concentrated in the taxation area, need to focus more on non-taxes, by raising charges on services which are not in the nature of 'merit goods' if the overall equity consequences of public budgeting are to be enhanced.