Output-Based Aid - Supporting Infrastructure Delivery through Explicit and Performance-Based Subsidies

Increasing access to basic infrastructure and social services is critical to reducing poverty and achieving the Millennium Development Goals (MDGs). However, increasing access is a challenge because of the gap between what it costs to deliver a desired level of service and what can be funded through user charges.

Subsidies have often played a role in funding this gap, for a variety of socio-economic reasons: There may be limited ability to afford a particular infrastructure service, especially among specific disadvantaged groups. The service may have “public good” characteristics making it difficult to collect user charges. And there may be important positive economic externalities where the benefits of one individual’s consumption are felt much more widely in society, for example in the case of health and sanitation.