Government social spending in the EU countries: efficiency in poverty and income inequality reduction

Keywords: government expenditure, poverty, inequality, efficiency

Abstract

Research background: Income inequality and poverty attract a lot of attention among politicians, activists as well as scientists, who are trying to find a solution to these socio-economic problems. State intervention is commonly expected in this field, however, there is no agreement about the most efficient methods and instruments, as well as about the scale of public expenditure for the purpose of limiting poverty and inequality.

Purpose of the article: The aim of the paper is to specify efficiency of government social spending in reducing problems of poverty and income inequality in the EU countries. Moreover, the attention is paid to changes in the efficiency in a period of the 2007 crisis occurrence and its overcoming and to sources of the changes.

Methods: To fulfill the main goal of the paper, the DEA method is used, which enables to compare the social efficiency of the EU countries. The Malmquist index is also calculated and decomposed to identify changes in the efficiency and their sources in the crisis period. Data used in the analyses were obtained from Eurostat and OECD databases and cover the period from 2007 to 2016 year.

Findings & Value added: The main findings of the paper shed some light on the differences in social efficiency of government spending in the EU countries. Generally, the countries with a higher level of social spending are also those with lower efficiency in inequality reduction, however, the relationship doesn’t appear for poverty alleviation. Thus, the research suggests some substitution between the scale and the efficiency of social spending, at least for the inequality dimension. Moreover, some differences in a social model can be found between the countries of the  South and of the North: the countries of the South focus their social policy mainly on inequality reduction, while the Scandinavian countries as well as some other affluent societies direct their public support mainly on poverty alleviation. The research also shows that in the crisis period decreases in efficiency concerned mainly the poverty dimension. It reflects the fact that the poor were the losers of the crisis in favor of the middle classes. The efficiency losses were induced by negative changes in the current usage of public sources, while institutional reforms positively influenced the efficiency.

Downloads

Download data is not yet available.

References

Adam, A., Delis, M., & Kammas, P. (2011). Public sector efficiency: leveling the playing field between OECD countries. Public Choice, 146. doi: 10.1007/ s11127-009-9588-7.

Afonso, A., & Kazemi, M. (2017). Assessing public spending efficiency in 20 OECD countries. In B. Bökemeier & A. Greiner (Eds.). Inequality and finance in macrodynamics. Springer. doi: 10.1007/978-3-319-54690-2_2.

Afonso, A., Schuknecht, L., & Tanzi, V. (2010). Income distribution determinants and public spending efficiency. Journal of Economic Inequality, 8(3). doi: 10.1007/s10888-010-9138-z.

Afonso, A., Romero, A., & Monsalve, E. (2013). Public sector efficiency: evidence for Latin America. Inter-American Development Bank Discussion Paper, No. IDB-DP-279. doi: 10.2139/ssrn.2365007.

Anderson, E., D’Orey, M. A. J., Duvendack, M., & Esposito, L. (2017). Does government spending affect income inequality? A meta-regression analysis. Journal of Economic Surveys, 31(4). doi: 10.1111/joes.12173.

Anderson, E., D’Orey, M. A. J., Duvendack, M., & Esposito, L. (2018). Does government spending affect income poverty? A meta-regression analysis. World Development, 103. doi: 10.1016/j.worlddev.2017.10.006.

Battisti, M., & Zeira, J. (2016). The effects of fiscal redistribution. In K. Basu & J. E. Stiglitz (Eds.). Inequality and growth: patterns and policy. London: Palgrave Macmillan.

Buracom, P. (2011). The determinants and distributional effects of public education, health, and welfare spending in Thailand. Asian Affairs: An American Review, 38. doi: 10.1080/00927678.2011.565282.

Cantillon, B., Marx, I., & Van den Bosch, K. (2003). The puzzle of egalitarianism: the relationship between employment, wage inequality, social expenditure and poverty. European Journal of Social Security, 5(2). doi: 10.1177/1388262703 00500203.

Choi, H., & Park, M. J. (2019). Evaluating the efficiency of governmental excellence for social progress: focusing on low and lower middle income countries. Social Indicators Research, 141. doi: 10.1007/s11205-018-1835-1.

Clemente, J., Marcuello, C., & Montañes, A. (2012). Government social spending and GDP: has there been a change in social policy? Applied Economics, 44. doi: 10.1080/00036846.2011.568401.

Coelli, T. (1996). A guide to DEAP version 2.1: a Data Envelopment Analysis (Computer) Program. CEPA Working Paper, 96/08.

Cosmin, E. (2012). Social protection public expenditures and income inequality. “Ovidius” University Annals, Economic Sciences Series, 12(2).

Di Gioacchino, D., Sabani, L., & Tedeschi, S. (2014). Preferences for social protection: theory and empirics. Economic Modelling, 36. doi: 10.1016/j.econmod. 2013.09.055.

Eurostat [tepsr_sp110], https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init= 1&plugin=1&language=en&pcode=tepsr_sp110 (29.08.2018).

Eurostat [tespm050], https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1& plugin=1&language=en&pcode=tespm050 (29.08.2018).

Ferrer, J. G., Rigla, F. R., Rozas, G. C., & Figueroa, C. V. (2014). Comparison of social spending and tax policy before and after the crisis: the cases of Spain and Chile. Global Studies Journal, 6.

Fiszbein, A., Kanbur, R., & Yemtsov, R. (2014). Social protection and poverty reduction: global patterns and some targets. World Development, 61. doi: 10.1016/j.worlddev.2014.04.010.

Haile, F., & Niño-Zarazúa, M. (2018). Does social spending improve welfare in low-income and middle-income countries? Journal of International Development, 30. doi: 10.1002/jid.3326.

Heimberger, Ph. (2018). The dynamic effects of fiscal consolidation episodes on income inequality: evidence for 17 OECD countries over 1978–2013. Empirica. Advance Online Publication. doi: 10.1007/s10663-018-9404-z.

Hauner, D., & Kyobe, A. (2010). Determinants of government efficiency. World Development, 38(11). doi:10.1016/j.worlddev.2010.04.004.

Herrera, S., & Pang, (2005). Efficiency of public spending in developing countries: an efficiency frontier approach. Policy Research Working Paper, no. 3645. Washington: World Bank. doi: 10.1596/1813-9450-3645.

Joumard, I., Pisu, M., & Bloch, D. (2012). Less income inequality and more growth – are they compatible? Part 3. Income redistribution via taxes and transfers across OECD countries. OECD Economics Department Working Papers, 926. doi: 10.1787/5k9h296b1zjf-en.

Kiendrebeogo, Y., Assimaidou, K., & Tall, A. (2017). Social protection for poverty reduction in times of crisis. Journal of Policy Modeling, 39. doi: 10.1016/j. jpolmod.2017.09.003.

Marx, I., Nolan, B., & Olivera, J. (2015). The welfare state and antipoverty policy in rich countries. In A. B. Atkinson & F. Bourguignon (Eds.). Handbook of income distribution. Volume 2B. Elsevier. doi: 10.1016/B978-0-444-59429-7.00024-8.

OECD, http://www.oecd.org/social/income-distribution-database.htm (3.09.2018).

Prasetyo, A. D., & Zuhdi, U. (2013). The government expenditure efficiency towards the human development. Procedia Economics and Finance, 5. doi: 10.1016/S2212-5671(13)00072-5

Savage, L. (2019). The politics of social spending after the Great Recession: the return of partisan policy making. Governance, 32. doi: 10.1111/gove.12354.

World Development Report 2004: Making Services Work for Poor People (2003). Washington, D.C.: The International Bank for Reconstruction and Development/The World Bank.

Published
2019-09-30
How to Cite
Cyrek, M. (2019). Government social spending in the EU countries: efficiency in poverty and income inequality reduction. Equilibrium. Quarterly Journal of Economics and Economic Policy, 14(3), 405-424. https://doi.org/10.24136/eq.2019.019
Section
Articles