Public cash transfers and poverty dynamics in Europe

Abstract

Using individual-level data for 11 European countries, in combination with country-level data, this paper examines associations between the receipt of public transfers by individuals and their probabilities of exiting and entering poverty, as well as the total amount of time spent below the poverty line. Rather than focusing on welfare regime typology or shares of transfers in total income as most studies do, we partition total transfer income into separate transfer components and account for countries heterogeneity in their provision. The results show that an increase in the amount of unemployment transfers received by individuals is associated with higher probabilities of exiting poverty when these transfers are combined with well-developed active labor market policies. Old-age transfers become an important instrument for the reduction in time spent below the poverty line if they are generous in size and not progressively distributed along the total income distribution. Finally, an increase in the amount of family benefits received is associated with lower probabilities of poverty entry in the countries which spend larger shares of gross domestic product on child care facilities.