Social expenditure and poverty reduction in the EU15 and other OECD countries
The European Union coordinates and encourages Member State actions to combat poverty, and to reform their social protection systems on the basis of policy exchanges and mutual learning (‘best practices’). Some EU countries are more effective in poverty reduction than others. What can explain these variations in effectiveness? This paper analyzes the effectiveness of social transfers in alleviating poverty. We focus on EU15 countries, but also include other OECD countries in our analysis. We compare poverty rates at the levels of market and disposable incomes, that is before and after transfers, in order to analyze the effect of tax and transfer policies in reducing poverty, i.e. to determine the target efficiency of social transfers. We perform several tests with the most recent data (LIS, OECD, SOCX, and Eurostat: ECHP/EU-SILC). Finally, we perform several partial analyses by disaggregating poverty rates to socioeconomic and demographic conditions in order to investigate to what extent variations at the social program level (such as old age pensions, child benefits) affect the measured effectiveness of the welfare state in alleviating poverty. Empirical results draw heavily on how pensions are treated - as primary income or as transfer. We find a strong relationship between levels of social spending and antipoverty effects of social transfers and taxes across EU15 countries. Social spending seems to be an important determinant of a country’s poverty outcome, especially among the elderly, when pensions are considered as transfers. Our analysis highlights some cross-country differences in targeting of social expenditures on poverty alleviation in EU15 and non-EU15 countries around 2005. We introduce an indicator of Public Policy Effectiveness on Poverty Alleviation across countries. Each percentage point of social expenditure alleviates poverty in both EU15 and non-EU15 countries by .7 percentage points on average. Relatively high scores in EU15 countries are found for Ireland and Scandinavian countries, while Italy, Greece and Spain score lowest. Outside Europe the poorest scores are reported for Korea and the USA. Country ranking appears to be rather stable over time when outcomes for 1995 and 2005 are compared, although some of our results may be sensitive to cyclical factors. Finally, we analyzed poverty among vulnerable age groups. Our results show that family programs and child support alleviate poverty among children to a large extent, especially in non-EU15 countries. For public and private old age pension and survivors schemes we find no effect on poverty in case pensions are considered as transfers (both in EU15 and non-EU15 countries). However, this picture changes completely when pensions are counted as transfers. In that case the poverty rate among elderly in EU15 falls from 90 to 21 percent through taxes and social transfers!
|Date of creation:||2009|
|Date of revision:|
|Publication status:||Published in Department of Economics Research Memorandum 2009.02 (2009): pp. 1-33|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Förster & Mark Pearson, 2002. "Income Distribution and Poverty in the OECD Area: Trends and Driving Forces," OECD Economic Studies, OECD Publishing, vol. 2002(1), pages 7-38.
- Anthony C. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Working Paper Series 881, CESifo Group Munich.
- Willem Adema, 2001. "Net Social Expenditure: 2nd Edition," OECD Labour Market and Social Policy Occasional Papers 52, OECD Publishing.
- Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
- Gottschalk, Peter & Smeeding, Timothy M., 2000. "Empirical evidence on income inequality in industrialized countries," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 5, pages 261-307 Elsevier.
- Notten, Geranda & Neubourg, Chris de, 2007. "Relative or absolute poverty in the US and EU? The battle of the rates," MPRA Paper 5313, University Library of Munich, Germany, revised 15 May 2007.
- repec:kap:iaecre:v:11:y:2005:i:2:p:175-189 is not listed on IDEAS
- Caminada, Koen & Goudswaard, Kees & Koster, Ferry, 2010.
"Social Income Transfers and Poverty Alleviation in OECD Countries,"
27345, University Library of Munich, Germany.
- Caminada, Koen & Goudswaard, Kees & Koster, Ferry, 2010. "Social income transfers and poverty alleviation in OECD countries," MPRA Paper 20733, University Library of Munich, Germany.
- Jantti, Markus & Danziger, Sheldon, 2000. "Income poverty in advanced countries," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 6, pages 309-378 Elsevier.
- A. B. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Economic Studies, CESifo, vol. 49(4), pages 479-513.
- Andrea Brandolini, 2007. "Measurement of income distribution in supranational entities: the case of the European Union," Temi di discussione (Economic working papers) 623, Bank of Italy, Economic Research and International Relations Area.
- Caminada, Koen & Goudswaard, Kees, 2001.
"International trends in income inequality and social policy,"
20181, University Library of Munich, Germany.
- Koen Caminada & Kees Goudswaard, 2001. "International Trends in Income Inequality and Social Policy," International Tax and Public Finance, Springer, vol. 8(4), pages 395-415, August.
- Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
- Tony Atkinson, 2002. "Social Inclusion and the European Union," Journal of Common Market Studies, Wiley Blackwell, vol. 40(4), pages 625-643, November.
- Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
- Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:20138. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.