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

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.

Institutional development gap in the social sector: Cross-country analysis

“…It explains the differences between the spending levels of countries by different standards of welfare, differences in social protection systems, demographic trends, unemployment rates and other social, institutional and economic factors. Cyrek, (2019) studied the effectiveness of state social expenditures to reduce poverty and income inequalities in the EU countries and identified differences in government effectiveness in the observed countries. Generally, countries with higher levels of social spending are less efficient.…”

“…Negative changes in the current use of funds lead to this situation. However, Cyrek, (2019) noted that institutional reforms have a positive impact on the effectiveness of social expenditures.…”

Poverty and Social Exclusion in the Context of the Implementation of the Sustainable Development Goals

“…This phenomenon can be explained by differences in social models between EU countriesthe Scandinavian and some other affluent countries spend more on social benefits related to poverty alleviation. In contrast, southern European countries focus their social policies first on reducing inequalities (Cyrek, 2019).…”

“…For many years, critics have argued that social support programs do not do so because: (1) only a tiny fraction of transfers reach the poor, (2) these programs create a prosperity/poverty trap, or (3) weaken the economy (Kenworthy, 1999). Moreover, countries with higher social spending levels are also less effective in reducing inequalities (Cyrek, 2019). However, this does not diminish the fact that social transfers can reduce income poverty and the extent and depth of material deprivation (Notten and Guio, 2016).…”

Heterogeneity of government social spending in European Union countries

“…EU countries are highly developed, and they have complex public schemes of social securities, often supported by private programmes. However, there are certain differences in social policies that negatively influence social cohesion [16]. Some of these differences are observed in the governments' social expenditure, in the structure of this expenditure and in social policies' effectiveness [8,15].…”