Redistribution and efficiency: An empirical analysis of the relevant trade‐offs of welfare state fiscal policies

Abstract

This paper analyses the empirical trade-offs between equity and efficiency of various instruments of welfare state fiscal policies. To this end, we present and estimate different systems of structural equations and their error components through which these fiscal policies affect redistribution and economic growth. The empirical results, obtained by using a panel data of 35 high-and upper-middle-income countries over the period 1980-2014, suggest that not all policies depress economic growth rates. In relation to cash transfer variables, we can observe a significant empirical trade-off of old-age-related transfers. However, we do not find a significant equity-efficiency trade-off for working-age transfers. This variable has only a significant and positive effect in the redistribution equation, but does not affect the economic growth rate. If we consider measures of direct taxes, we find a significant and important trade-off for social contributions, and to a lesser extent for income taxes. We do not find a significant trade-off for capital taxes. These taxes only have a significant and negative unexpected effect on redistribution.

Health human capital formation in the OECD: Exploring the role of welfare state composition

“…Existing research, as discussed by Nixon and Ulmann (2006), has not come to a consensus on the efficacy of increasing health expenditure for a higher availability of health human capital and studies that investigate the role of social spending composition are scarce. In recent years, a growing literature has investigated the relevance of specific categories of social expenditure for different social and economic outcomes such as poverty, inequality, economic recovery, and long run growth, Cammeraat (2020), Crociata et al (2020), Furceri and Zdzienicka (2012), Muinelo‐Gallo and Miranda Lescano (2022). Surprising as it may be, despite this growing interest in the effects of the anatomy of social expenditure, very little attention has been given to examining its part in human capital development and particularly health, notwithstanding the rich empirical literature that focus exclusively on the impact of health expenditure.…”

The Equity-Efficiency Trade-Off in the Presence of Distorting Taxation

“…• For further discussion of the equity-efficiency controversy, see for example Dalamagas et al (2022), Goulder et al (2019), Stantcheva (2020), Piketty and Saez (2013), Gürer (2021), Colas and Hutchinson (2021), Jacobs et al (2010), Gerritsen (2017), McKenzie (2021, Muinelo-Gallo and Lescano (2022), Magnani and Piccoli (2020).…”