Social Expenditure in the European Union: Does Inequality Matter?

Abstract

Do countries with serious inequality problems make a greater effort to rectify this situation? Is equality a key element in social spending budget design? We attempt to answer these, and other, questions throughout this article. The objective of this paper is to analyze the economic and institutional factors influencing, to a greater or lesser degree, social spending in the 27 countries that comprise the European Union (EU). To this end, we use a data panel for a period of eleven years and add further variables to those generally used, such as income distribution, poverty rate, governing party ideology, index of economic freedom, and belonging to the Eurozone. The results we obtained prove that the estimated model is robust, and that economic development, economic freedom, and the euro currency creation have all led to greater social spending. However, growing income inequality has not led to an increase in social expenditure.

Keywords:

• income distribution
• institutionalism
• population
• social expenditure
• tax pressure