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AbstractUsing data for a sample of developing countries and transition economies, this paper estimates the relationship between government spending on health care and education and selected social indicators. Unlike previous studies, where social indicators are used as proxies for the unobservable health and education status of the population, this paper estimates a latent variable model. The findings suggest that public spending is an important determinant of social outcomes, particularly in the education sector. Overall, the latent variable approach yields better estimates of a social production function than the traditional approach, with higher elasticities of social indicators with respect to income and spending, therefore providing stronger evidence that increases in public spending do have a positive impact on social outcomes. Copyright © 2003 John Wiley & Sons, Ltd.

In late 1999 the IMF established the Poverty Reduction and Growth Facility (PRGF) to integrate the objectives of poverty reduction and growth more fully into its operations for the poorest countries, and to base these operations on national poverty reduction strategies prepared by the country with broad participation of key stakeholders. A review of the program would be conducted two years later. This paper synthesizes two papers prepared by IMF staff: Review of the Poverty Reduction and Growth Facility: Issues and Options, and Review of the Key Features of the Poverty Reduction and Growth Facility: Staff Analyses. The paper draws on a broad range of internal and external views gathered between July 2001 and February 2002, including discussions at regional forums, meetings with donor government officials and representatives of civil society organizations, and comments of key officials in member countries with PRGF arrangements