Thursday, 22 January 2015

The effectiveness of social transfer payments in reducing poverty in Germany, Greece and Portugal.

A rather important issue in today’s Europe is the social state. There is a lot of pressure on member states to balance their budgets and a lot of discontent along the process. One way to assist the process and maybe make it less painful is make social transfer payments more efficient (i.e. making sure their recipients are those who really need them). One good proxy of the efficiency of the process is how much poverty is reduced by it.

I have been looking for these data for a while (not efficiently enough as it turns out). The poverty threshold is defined as 60% of median income. I will post charts for Greece, Portugal and Germany.

source: Eurostat, Crisis Observastory

Greece had for a number of years (2005 – 2011) the lowest at-risk-of-poverty rate before social transfer payments.  

For the same period though that Greece had the lowest percent of its population at-risk-of-poverty compared to the other two countries (2005 - 2011), it also had the highest percent of its population at-risk-of-poverty after one takes social transfer payments into account.

source: Eurostat, Crisis Observatory

If this does not constitute policy failure then I don’t know what does. Also interesting to see is the net effect that social transfer payments have on reducing poverty in the three countries.

source: Eurostat, Crisis Observatory, own calculations

Efficiency has dropped for Germany since the second half of the 00s, has been mostly stagnant in Portugal and has been improving, albeit sluggishly, for Greece. Still, efficiency is pretty low for Greece and a first step could probably be to aim for the level of poverty reduction that Portugal has achieved.

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