The role of public social expenditure for mitigating local income inequality: An investigation across spatial scales in Austria

Abstract

This paper investigates the role of municipal and provincial public social spending for local income inequality after taxes and transfers in Austria. We utilize a spatial multi‐level model, which allows us to analyze the contribution of three spatial scales (municipal, district, and provincial level) to municipal income inequality. Our analysis shows that the effect of public social spending on local Gini indices does not only differ across provinces but also across municipalities which indicates that the potential cushioning effect of social expenditure is highly localized. Further splitting total public social expenditure into three distinct categories (education, health, social protection) reveals that spending on social protection has the highest effect on local inequality across all provinces, while health spending does not exert a discernible influence in any province. The method and results presented in this paper are of international interest for policymakers and researchers who aim to investigate whether the same patterns hold true in other countries.