Study on a resource allocation formula for social services in Finland

This article considers how a specific need-based resource allocation formula for children's day care, income support, child welfare and other social services was developed. The formula is needed for the municipal allocation of state subsidies for social services, and the work was performed for the Ministry of Social Welfare and Health. Cross-sectional data were collected from the 436 Finnish municipalities and 37 small areas within the six largest cities. Because of the simultaneous relationship between supply and demand of services, two-stage least-square estimation and structural equations models were used in the analysis. After the effect of supply was removed from the service utilisation data, group-need factors (municipal variables) were found for these services. The new formula is financially and administratively feasible, transparent and reasonably simple.