Are Public and Private Social Expenditures Complementary?

Abstract

Most analyses of social protection are focussed on public arrangements. However, social effort is not restricted to the public domain; all kinds of private arrangements can be substitutes to public programs. OECD-data indicate that accounting for private social benefits and the impact of the tax system on social expenditure has an equalising effect on levels of social effort across a number of countries. This suggests complementarity between public and private social expenditures. Changes in the public/private mix in social protection will, however, have distributional effects. We expect that private schemes will generate less income redistribution than public programs. In this paper we will perform an empirical analysis. Using comparative international data we analyse whether there is a relationship between public and private social expenditures, and the distribution of income. We find a negative relationship between net public social expenditures and income inequality, but a positive relationship between net private social expenditures and income inequality across countries. In fact, when we incorporate private social security expenditures, the impact of total social expenditure on the income distribution becomes statistically trivial. We conclude that changes in the public/private mix in the provision of social protection may affect the redistributive impact of the welfare state. JEL-classification: D3, H22, and H55

Pension Reform and Income Inequality Among the Elderly in 15 European Countries

“…Based on a cross-national study at the macro level Smeeding and Williamson (2001) conclude that high levels of public social spending are associated with low levels of income inequality and poverty. Caminada and Goudswaard (2005) and Goudswaard and Caminada (2010) compare the redistributive effects of public and private social security. Taking a broad definition of social security and based on an international comparative analysis, they conclude that the redistributive effect of private social security is smaller than that of public social security.…”

Disentangling Income Inequality and the Redistributive Effect of Taxes and Transfers in 20 LIS Countries Over Time

“…With respect to income mobility, Morillas (2009) finds that market income inequality is negatively associated with the level of the redistributive effect of taxes and transfers across countries. Goudswaard and Caminada (2010) and Caminada and Goudswaard (2005) studied the redistribution of public versus private social programs which have opposite distributional effects.…”

Social Income Transfers and Poverty Alleviation in OECD Countries

“…Unfortunately, these data only cover a relatively short time period (1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005) as well as a small group of countries. The most recent figures of the net social expenditure as percentage of GDP, based on the 2008 edition of the Net Social Expenditure data, indicate that accounting for the impact of taxes and of private social expenditure has an equalizing effect on levels of social effort across countries; see Caminada and Goudswaard (2005).…”

“…Moreover, in all countries other than Austria and Ireland private social expenditures have risen in the period 1985-2005 -in some countries rather rapidly. There may be various explanations for this increase in private social expenditure (Caminada and Goudswaard, 2005). Lower public protection may induce private social arrangements of a different nature.…”