Child Poverty: What Can Social Spending Explain in Europe?

Abstract

This study assesses the role of social spending in relation to child poverty in European welfare states. Using macro-level panel data from EU SILC 2005-2012, we analyze the effect of the size of social spending and the effect of how those benefits are targeted. We separately estimate the effect of pension benefits on child poverty, as the prevalence of multigenerational families makes them a relevant income source for families with children, especially in Southern and Eastern European welfare states. Estimating a GLS model including time and country fixed effects, we find that both cash transfers and pensions substantially reduce child poverty. Increased targeting also leads to lower poverty rates, but the effect sizes are more modest by comparison, and strongly depend on how targeting is defined. The estimates for social spending change little across various model specifications and we also obtain similar estimates when we use regional variation within countries to assess the same effects. Where social spending explains a large share of variation in poverty within countries over time, the explanatory power with respect to cross-sectional variation in poverty rates is limited. The complete model does explain a large share of cross-sectional disparities in poverty across European welfare states, but a sizable unexplained variation remains. This unexplained disparity likely relates to factors that are more invariable over time.