This paper uses a large dataset combining census, household survey and budgetary data for nearly
4.000 Brazilian municipalities to estimate the impact of government spending on education and health
outcomes. We deal with the multi-dimensional nature of the population’s social status by estimating
structural equation models with latent variables using a limited-information two-stage least square (2SLS)
estimator. Robustness of the baseline regressions to heterogeneity in the data is assessed on the basis of
quantile regressions. The main empirical findings are that government spending is a powerful determinant
of education outcomes, but this is not the case for health, and that spending on non-education programmes
are also at least as important. In addition, there appears to be scope for gains in economies of scale in the
provision of education and health care services, at least for selected segments of the conditional
distribution of social outcomes. Finally, there are cross-sectoral effects in service delivery: health
(education) outcomes affect the population’s education (health) status. This Working Paper relates to the
2009 OECD Economic Survey of Brazil (www.oecd.org/eco/surveys/brazil).
