Do Social-Welfare Policies Reduce Poverty? A Cross-National Assessment

Most social scientists, policy makers, and citizens who support the welfare state do so in part because they believe social-welfare programs help to reduce the incidence of poverty. Yet a growing number of critics assert that such programs in fact fail to do so, because too small a share of transfers actually reaches the poor, or because such programs create a welfare/poverty trap, or because they weaken the economy. This study assesses the effects of social-welfare policy extensiveness on poverty across 15 affluent industrialized nations over the period 1960-91, using both absolute and relative measures of poverty. The results strongly support the conventional view that social-welfare programs reduce poverty. Do Social-Welfare Policies Reduce Poverty? A Cross-National Assessment A central aim of social-welfare policies is to reduce poverty. Every major industrialized nation has a set of programs that transfer between 10% and 30% of the country’s gross domestic product (GDP) among the populace, a key goal of which is to improve the wellbeing of those at or near the bottom of the income distribution. Do these programs work? This issue has been subject to increasingly heated debate. A number of analysts contend that social-welfare policies do indeed help to alleviate poverty. But the past two decades have witnessed a growing chorus of criticism. Some aver that too little of the income that is transferred actually reaches the poor. Others suggest that by providing a safety net, such programs sap the initiative of the poor and thereby create a “poverty trap.” Critics also frequently contend that steep tax rates and generous benefits reduce economic growth, offsetting or outweighing in the long run any poverty reduction achieved in the short run. Who is right? This study offers a cross-national empirical assessment of the utility of socialwelfare policies in reducing poverty. I do so by examining the relationship between socialwelfare policy extensiveness and poverty rates across 15 affluent industrialized nations during the period 1960-91. The question I attempt to answer is: Do countries with more extensive social-welfare programs have less poverty? A prominent line of thought suggests that redistribution may indeed reduce poverty, but only in the short run and only if poverty is defined in a “relative” sense  as the share of citizens in a country with incomes below a certain percentage of the median for that country. Poverty is more usefully defined, according to this view, in an “absolute” sense  as the share with incomes below a specified level that is held constant across countries. If we use an absolute poverty measure, we might find that nations with more generous social-welfare benefits tend to