Efficiency of Social Expenditure Levels in Reducing Poverty Risk in the EU‐28

Abstract

We evaluate the efficiency of social expenditure (SE) to reduce poverty in the European Union (EU) between 2007 and 2015. The data are programs provided by the EU‐SILC and the ESSPROS. Incorporating efficiency analysis improves the results of the analysis of that complex relationship. We found that the correlation between SE and the levels of poverty (and the correlation between SE and the capacity to reduce poverty) is not strong. In addition, the correlation between SE and the levels of poverty before SE (and the correlation between SE and the levels of inequality before SE) is not significant. Our analysis of the efficiency identifies four groups of countries. The first group has a correspondence with the Continental and Nordic Welfare models (Esping‐Andersen, 1990). They have a great level of SE, and their efficiency is above the EU‐28 average. The second group presents the highest efficiency values. The third group is formed by the Mediterranean welfare states, which present a moderate level of expenditure but have low efficiency. A fourth group composed of non‐EU‐15 countries presents a low SE with under/on average efficiency. We also observe that SEs in family/children, housing, and sickness/healthcare are significantly and positively correlated with efficiency measures. Likewise, in the EU‐15, social exclusion expense exhibits a great positive relationship with the efficiency in poverty reduction.