The Effects of Social Spending on Income Inequality in 30 OECD Countries

Abstract

Social spending programs began to be implemented in the post-World War II period owing to the positive developments in economic and demographic indicators. In the following years, governments used social spending programs to eliminate income differences between income groups due to their increasing social benefit function. Hence, the redistribution of income from high-income groups to low-income groups occurs through taxation. The unfairly distributed income lead to not direct human capital and public resources for productive economic activities. Accordingly, governments try to minimize or remove the negative effects of income inequality by social spendings. The study aims at investigating the relationship between social spendings and income inequality in 2009, 2011, the years when the effect of the 2008 crisis observed in the world, and 2015 not being the crisis year by the OLS method by cross-section regression analysis in 30 OECD countries. The analysis results show that an increase in social spending reduces income inequality. Moreover, trade openness negatively affects income inequality, unemployment increases income inequality, and it is possible to interpret that the positive effect of social expenditures on income distribution decreased during the crisis years by compared to the year-based estimation results.