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Do Welfare States Reduce Poverty? A Critical Shortcoming in the Standard Analysis of the Anti-Poverty Effect of Welfare States

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  • Hwanjoon Kim

Abstract

A standard analysis of the anti-poverty effect of taxes and income transfers is to compare pre-tax-transfer poverty and post-tax-transfer poverty. A critical shortcoming of the standard approach is that it treats pre-tax-transfer poverty as given and ignores potential effects of taxes and transfers on pre-tax-transfer poverty. Using cross-national variation, this study examines potential endogeniety of pre-tax-transfer poverty. The results suggest that both the generosity and efficiency of the tax/transfer system may influence the level of pre-tax-transfer poverty. If this is true, the standard approach overestimates the anti-poverty effectiveness of generous and/or targeted welfare systems.

Suggested Citation

  • Hwanjoon Kim, 2000. "Do Welfare States Reduce Poverty? A Critical Shortcoming in the Standard Analysis of the Anti-Poverty Effect of Welfare States," LIS Working papers 233, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:233
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    References listed on IDEAS

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    1. Hwanjoon Kim, 2000. "Anti-Poverty Effectiveness of Taxes and Income Transfers in Welfare States," LIS Working papers 228, LIS Cross-National Data Center in Luxembourg.
    2. Gustafsson, Siv, 1992. "Separate Taxation and Married Women's Labor Supply: A Comparison of West Germany and Sweden," Journal of Population Economics, Springer;European Society for Population Economics, vol. 5(1), pages 61-85, February.
    3. Besley, Timothy, 1990. "Means Testing versus Universal Provision in Poverty Alleviation Programmes," Economica, London School of Economics and Political Science, vol. 57(225), pages 119-129, February.
    4. Joakim Palme & Walter Korpi, 1998. "The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality and Poverty in the Western Countries," LIS Working papers 174, LIS Cross-National Data Center in Luxembourg.
    5. Hsiao, Cheng, 1979. "Causality tests in econometrics," Journal of Economic Dynamics and Control, Elsevier, vol. 1(4), pages 321-346, November.
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    1. Picot, Garnett & Morissette, Rene & Myles, John, 2003. "Low-income Intensity During the 1990s: The Role of Economic Growth, Employment Earnings and Social Transfers," Analytical Studies Branch Research Paper Series 2003172e, Statistics Canada, Analytical Studies Branch.
    2. Chen Wang & Kees Goudswaard & Koen Caminada, 2012. "Disentangling Income Inequality and the Redistributive Effect of Taxes and Transfers in 20 LIS Countries Over Time Evidence from the LIS Data," LIS Working papers 581, LIS Cross-National Data Center in Luxembourg.
    3. Garnett Picot & René Morissette & John Myles, 2003. "Low-Income Intensity During the 1990s: The Role of Economic Growth, Employment Earnings and Social Transfers," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 15-40, January.

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