Diminishing Returns? Revisiting the Welfare State-Poverty Association

This paper investigates whether the association between welfare state effort and lower poverty remains as strong as previous literature suggests. Extending Scruggs and Allan’s (2006) study, we examine the association between social insurance generosity, government spending, and both relative and absolute poverty in 16 OECD countries between approximately 1980 and 2017. Using updated datasets, we reproduce their original models based on pre-2001 data, test their predictive performance in the post-2000 period, and estimate interaction models to assess whether the effects have changed over time. Our results show diverging poverty trajectories: while absolute poverty has decreased, relative poverty has continued to rise. Moreover, our findings reveal signs of diminishing returns as the association of pension benefit generosity and poverty has weakened considerably after 2000. While absolute living standards may continue to improve despite diminishing effects from traditional social insurance programs like pensions, such progress cannot be expected for relative poverty.