The Impact of social transfers on poverty reduction in EU countries

Abstract

Available studies indicate a strong negative correlation between poverty and social expenditures in EU countries. It means that the country's at-risk-of-poverty rate tends to erode with increasing social expenditure. However, the studies have demonstrated that the impact of government spending on poverty may vary according to the sector of spending, how well it is targeted, and the way in which it is financed. Some countries manage to achieve a rather significant poverty rate reduction even with relatively low, in the context of other Member States, social expenditure (percentage of GDP). This suggests that in order to reduce poverty rates, it is important to consider not only the amount allocated to social spending, but also the areas the social transfers are channelled to. The article aims to analyse how the composition and the extent of social spending/transfers may affect poverty reduction in EU countries. The analysis showed that social protection transfers reduce the percentage of people at-risk-of-poverty in all countries, however, to a very different extent. Regression analysis demonstrated that social exclusion and family/children expenditure was found to be the most important predictor for a relative antipoverty effect of social transfers: even a small percentage increase in such expenditure allows quite a significant increase in the relative antipoverty effect of social transfers.