The Relationship between Alternative Measures of Social Spending and Poverty Rates

This paper analyzes the relationship between social expenditure and relative income poverty. A vast literature claims that high social effort goes along with low poverty levels across countries. Social expenditure ratios are generally used as a proxy for social effort. However, this indicator is far from perfect. We analyze the familiar claim capturing also private social expenditure and the impact of the tax system on social effort, using OECD methodology. This gives a much better measure of what is really devoted to social spending. We performed several tests with the most recent data. We still find quite a strong negative relationship between the level of gross public social expenditure and poverty, but after also controlling for the impact of taxes on the social expenditure ratios, the linkage between social effort and poverty levels across countries becomes much weaker or insignificant. Thus, the familiar claim must be toned down