The European Union coordinates and encourages Member State actions to combat poverty, and to reform their social protection systems on the basis of policy exchanges and mutual learning (‘best practices’). The EU Social Protection and Social Inclusion Process underpins the achievement of the Union’s strategic goal of sustained economic growth, more and better jobs, and greater social cohesion by 2010. The Lisbon Agenda has renewed the interest of poverty alleviation across member states. However, still a sizable proportion of the EU-15 population lives in poverty (16 percent), although both poverty structure and poverty rates vary across countries (from 9 percent in Sweden to 20 percent in Ireland, Greece, Spain and Portugal). Moreover, the average at-risk-of-poverty rates – an official EU social cohesion indicator – even have risen since the adoption of the Lisbon Agenda.
Some EU countries are more effective in poverty reduction than others. What can explain these variations in effectiveness? This paper analyses the effectiveness of welfare state policies in EU countries in alleviating poverty. To indicate whether European economic integration may have had any impact on poverty reduction, we also include several non-EU OECD countries as a bench mark into our analysis. We analyze on a cross-country basis the relationship between poverty rates and social effort, as measured by social expenditure ratios. We also correct these expenditure ratios for the impact of the tax system and for private social arrangements, using OECD methodology (Caminada and Goudswaard, 2005). Next, we compare poverty rates at the levels of market and disposable incomes in order to analyze the effect of tax and transfer policies in reducing poverty, i.e. to determine the target efficiency of social transfers. We will perform several tests with the most recent data (LIS, OECD SOCX, and Eurostat).
Preliminary results are less clear cut than earlier findings (Smeeding et al, 2000; Behrendt, 2002; Förster and d’Ercole, 2005). We find a quite strong negative relationship between the level of social expenditure and poverty among OECD countries. However, for EU countries this relationship is much weaker. But there are substantial differences. Our analysis highlights some best-practices on poverty alleviation in the EU-15. For example, each percentage point of net social expenditure alleviates poverty in Scandinavian countries by 0.8-0.9 percentage points, while the lowest scores can be found in Italy, Spain and Portugal (0.2-0.3).
Finally, we will perform several partial analyses by disaggregating poverty rates to socioeconomic and demographic conditions (using recent data from the European Commission, 2007) in order to investigate to what extent variations at the social program level (such as old age pensions, child benefits) affect the measured effectiveness of the welfare state in alleviating poverty.