Excessive Social Imbalances and the Performance of Welfare States in the EU. Frank Vandenbroucke, Ron Diris and Gerlinde Verbist

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1 Excessive Scial Imbalances and the Perfrmance f Welfare States in the EU Frank Vandenbrucke, Rn Diris and Gerlinde Verbist

2 Child pverty in the Eurzne, SILC IT ES GR PT LU MT IE BE EE SK FR DE AT CY NL FI SI AROP 2008

3 Child pverty in the Eurzne, SILC threshld IT ES GR PT LU MT IE BE EE SK FR DE AT CY NL FI SI AROP 2008 AROP 2011 anchred

4 Child pverty in the Eurzne, SILC threshlds 2008 and IT ES GR PT LU MT IE BE EE SK FR DE AT CY NL FI SI AROP 2008 AROP 2011 anchred Arp 2011 flating

5 Disparity in child pverty Disparity in pverty rates is high, and is nt decreasing What can explain why cuntries perfrm s differently? Size f spending? Targeting f spending? Emplyment levels? Human capital? D disparities reduce when we cntrl fr any f these factrs?

6 Data Explanatry variables: Scial spending n cash transfers and pensins Husehld wrk intensity (tw measures) Pr-prness f transfer and pensin benefits Scial investment and human capital indicatrs Demgraphic dependency and GDP Data frm EU SILC cuntry bservatins: EU27 + Iceland and Nrway

7 Scial spending Separate measures fr transfer and pensin spending, based n EU SILC Measured as share f husehld incme Allws us t calculate spending wrt subppulatins Accunts fr differences in taxatin Tw different reference grups Nn-elderly ppulatin (0-59) fr transfers Child ppulatin (0-17) fr pensins Using SILC and including pensins changes the traditinal picture abut lw and high spenders

8 35% Transfers and pensins as % f eq. dispsable incme in SILC 2008; age [0-17] versus ESSPROS data (wrking-age cash benefits, % GDP; 2007) 30% 25% 20% 15% 10% 5% 0% Transfers SILC 2008 Pensins SILC 2008 Wrking Age Cash Benefits ESSPROS 2007

9 Husehld wrk intensity Fcus n tw ppulatin subgrups: Wrk pverty = share f individuals in husehlds with wrk intensity lwer than 55% Severe wrk pverty = share f individuals in husehlds with wrk intensity lwer than 20% We apply tw cntrls fr wrk intensity f the husehld (best fit): Wrk pverty Relative severity f wrk pverty = severe wrk pverty / wrk pverty

10 Pr-prness f spending We cntrl fr the size f spending, but als fr hw benefits are targeted ex pst We apply a measure f pr-prness, similar t Krpi and Palme (1998): calculates hw incme cmpnents are distributed, irrespective f their size Where K-P find that this is negatively related t the size f spending (mid 1980s), ur findings are different Psitive crrelatin between pr-prness f transfers and size f transfers N crrelatin between pr-prness f pensins and size f pensins

11 Estimatin methd We emply a GLS mdel with time and cuntry fixed effects Including cuntry fixed effects: cntrls fr structural indicatrs Cntrls fr large share f unbserved hetergeneity We cannt test the influence f time-cnstant factrs Mdel prves t be mre rbust than mdel withut fixed effects Especially with regard t the effect f pensins

12 Results Bth transfers and pensins are negatively related t pverty, with rughly similar impacts 1,0 pp increase leads t arund 0,25 pp reductin in pverty Statistically significant effects f wrk intensity and pr-prness f pensins Wrk intensity at the bttm f the distributin matters mst Pr-prness matters fr pensins but nt fr transfers Bth size and pr-prness f transfers matter much mre fr pverty reductin D they reduce incentives t be self-dependent?

13 Results Hwever, they explain nly very little f the disparity in pverty rates acrss Eurpe Magnitudes f effects is mdest N cuntry perfrms universally bad r gd n all these indicatrs N additinal explanatry pwer f human capital, scial investment, GDP r dependency Scial investment nly as static indicatr

14 Residuals Results: efficiency screbard Nrth New Central Old Central UK+IE Suth East Benchmark A Benchmark B Benchmark C Benchmark D DK FI IS NL NO SE CZ SI SK AU BE DE FR UK IE ES GR IT PT BG ET LI LT PL RO

15 Results: limitatins Patterns f husehld emplyment, level and architecture f spending are significant, but leave large disparity in perfrmance unexplained What des this remaining part cnsist f? Unknwn cuntry characteristics Qualitative dimensins f scial plicy Better measures f knwn characteristics? Human capital Measurement errr?

16 Cnclusin The underlying reasns fr disparities in pverty rates are cmplex, nt simple Including pensin spending in analysis f child pverty changes cnclusins in imprtant dimensins Bth emplyment creatin and distributin f jbs ver husehlds matter Pr-prness and size f transfers are nw psitively crrelated The hetergeneus influence f the current crisis culd be related t these very same structural indicatrs

17 Mean equivalized transfer incme, SILC % Transfers in SILC and transfers accrding t ESSPROS 16% 14% 12% IE HU SE FI DK NO BE 10% SI CZ UK AT DE FR LU 08% 06% LV BG LT RO EE IT SK PL MT PT ES CY IS NL 04% 02% GR 00% ESSPROS wrking-age cash benefits, 2007 (Eurstat) Essprs 2007 & SILC2008; transfers 45 axis Linear (Essprs 2007 & SILC2008; transfers)

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