Social welfare systems and inequality in Europe

Report

Social welfare systems and inequality in Europe

Horacio Levy, OCDE

European social welfare systems differ considerably across countries in size, structure and their impact on income inequality. Spain’s system is smaller, more centred on cash contributory benefits and less redistributive than other EU members. Structural reforms focusing on the most vulnerable groups (including households with children, young people and women) could contribute to reducing income inequality in Spain – currently one of the highest in Western Europe. The covid-19 crisis increased job insecurity and threatened a surge in unemployment. In most European countries, including Spain, unprecedented measures extending access to and the generosity of social programmes have been taken to reduce income inequality in the short run. The regressive effects of the crisis on the labour market may persevere in the long run if adequate follow-up measures are not put in place.
Key points
  • 1
       Public social spending in Spain makes up 23% of GDP, one of the smallest levels in Western Europe. Furthermore, it is more focused on cash contributory benefits (e.g. pensions and unemployment benefits), which make up 64% of total spending in Spain compared to 52% in the EU-27.
  • 2
       In Spain, a larger proportion of cash social benefits goes to higher-income than to lower-income households, in contrast to most EU members. While the distribution of benefits across income groups is quite even in the EU-27, in Spain a household at the top quintile receives 1.6 times more than a household at the bottom quintile.
  • 3
       Spain is one of the most unequal countries in Western Europe, as market incomes are uneven and tax-benefit redistribution is too small. For instance, as a share of mean disposable income, social spending in Spain is lower than the EU average ratios by 38% for children, 45% for young people and 16% for women.
  • 4
       Structural reforms would be needed to effectively reduce inequality, since small tax-benefit increases would have limited effect on income redistribution.
  • 5
       Policies introduced to alleviate the economic consequences of the covid-19 pandemic have been effective to fight income inequality in the short run. The regressive effects of the crisis on the labour market may persevere in the long run if adequate follow-up measures are not put in place.
Share of social cash benefits across quintiles of household disposable income in 2018 (%)
Share of social cash benefits across quintiles of household disposable income in 2018 (%)

In Spain, cash social benefits favour higher-income households. In Europe, the distribution is more even, as contributory benefits are less skewed and complemented with means-tested and universal benefits.

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