Social Expenditure and Poverty Reduction in the Eu15 and Other OECD Countries

Abstract

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! JEL-codes: H53, H55, I32

Poverty and Social Exclusion in Macedonia, Serbia and Croatia: Status and Policy Responses

“…In the case of Croatia, some of the factors contributing towards lower effectiveness include: a low level of means-tested social benefits (the World Bank, 2012), as well as little systematic monitoring of social assistance and benefits at national and local level (European Commission, 2013). Lower effect of the social protection system compared to the EU average, as indicated in other studies (Caminada and Goudswaard, 2009;Hermann et al, 2008) may also be seen as a result of the country's lower social spending. According to the ESSPROS 5 statistics (available only for Croatia and Serbia), social spending in Croatia in 2012 amounted to 20.6% of the country Gross Domestic Product (GDP), while Serbian social spending in 2010 (latest available data) amounted to 24.6% of its GDP (Eurostat, 2013).…”

Headline Poverty Target Reduction in Ireland and the Role of Work and Social Welfare

“…There is also a large body of international comparative studies that looks at the relationship between social transfers and poverty Marlier et al, 1999;Atkinson, 2000;Caminada & Goudswaard, 2009;Bibi & Duclos, 2009;Eurostat, 2010). Most studies find that there is a strong relationship between the level of social expenditure and the poverty level.…”

The Impact of Social Transfers on Poverty Reduction in EU Countries

“…A number of studies conducted over the past two decades have found that there is a strong negative correlation between poverty and social transfers. It means that countries with a higher level of social expenditure are likely to have lower poverty rates (Caminada & Goudswaard, 2009;Forster & d'Ercole, 2005;Anderson et al, 2018;Kim, 2000;Leventi et al, 2018). Public spending affects poverty reduction in several ways: it can raise the overall growth performance of the economy, and it can increase the chance of the poor to contribute to the growth process (mainly by strengthening human capabilities and reducing transaction costs).…”

“…The effect may also differ according to the time period of analysis, since some types of spending have direct, immediate impacts on poverty (e.g., transfers and subsidies), while others only have more indirect, medium-term effects (e.g., health, education, and infrastructure spending) (Anderson et al, 2018). Caminada and Goudswaard (2009) found that the effect of public spending on poverty is less strong in EU countries compared to non-EU-15 countries. Celikay and Gumus (2017) found that in the short run there is a negative relationship between social expenditure and poverty, but in the long run there exists a positive correlation between social expenditure and poverty.…”