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The end of cheap talk about poverty reduction: the cost of closing the poverty gap while maintaining work incentives

Author

Listed:
  • Collado, Diego
  • Goedemé, Tim
  • Vandelannoote, Dieter
  • Cantillon, Bea
  • Van den Bosch, Karel
Abstract
How can poverty reduction be improved and at what cost? Available evidence suggests that social investment strategies and employment policies are important but not sufficient. In order to reduce the number of people below the relative at-risk-of-poverty threshold of the EU, countries must develop not only effective employment policies but also ensure adequate social protection. This implies increasing social transfers for working and nonworking households, while protecting work incentives. In this paper we show that this is not a cheap option. We calculate the hypothetical cost of closing the poverty gap while maintaining the existing average labour market participation incentives at the bottom of the income distribution. We do it in three of the most developed welfares states of the EU, representing different welfare regimes, namely Belgium, Denmark and the United Kingdom. Results show that this would require around two times the budget needed to just lift all disposable household incomes to the poverty threshold. The cost would obviously be lower in countries with smaller poverty gaps and with weaker participation incentives. Furthermore, the results suggest that for anti-poverty strategies to be effective other factors should be considered more carefully, including the drivers of rising inequalities in market incomes, and especially the downward pressures on low wages, as well as the most appropriate magnitude of financial work incentives.

Suggested Citation

  • Collado, Diego & Goedemé, Tim & Vandelannoote, Dieter & Cantillon, Bea & Van den Bosch, Karel, 2017. "The end of cheap talk about poverty reduction: the cost of closing the poverty gap while maintaining work incentives," EUROMOD Working Papers EM5/17, EUROMOD at the Institute for Social and Economic Research.
    • Handle: RePEc:ese:emodwp:em5-17
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    References listed on IDEAS

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    Cited by:

    1. Collado, Diego, 2018. "Financial work incentives and the longterm unemployed: the case of Belgium," EUROMOD Working Papers EM1/18, EUROMOD at the Institute for Social and Economic Research.
    2. Savage, Michael & Callan, Tim & Regan, Mark & Walsh, John R, 2017. "Supporting family incomes: getting the balance right," Papers BP2018/1, Economic and Social Research Institute (ESRI).
    3. Lara Wemans & Sara Riscado & Edlira Narazani, 2022. "The role of family social transfers in reducing child poverty in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    4. Xavier Jara Tamayo, Holguer & Gasior, Katrin & Makovec, Mattia, 2017. "Low incentives to work at the extensive and intensive margin in selected EU countries," EUROMOD Working Papers EM3/17, EUROMOD at the Institute for Social and Economic Research.
    5. Diego Collado, 2018. "Financial work incentives and the long-term unemployed: the case of Belgium," Working Papers 1803, Herman Deleeck Centre for Social Policy, University of Antwerp.
    6. Chrysa Leventi & Holly Sutherland & Iva Valentinova Tasseva, 2016. "Improving poverty reduction in Europe: what works (best) where?," ImPRovE Working Papers 16/16, Herman Deleeck Centre for Social Policy, University of Antwerp.
    7. Brzezinski, Michal & Najsztub, Mateusz, 2021. "The impact of "Family 500+" programme on household incomes, poverty and inequality," SocArXiv vkr6h, Center for Open Science.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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