An Investigation into the Effectiveness of Social Protection Expenditures in Combating Income Inequality

This study examines the effectiveness of social protection expenditures in reducing income inequality, using data from 29 European countries between 2007 and 2021. Employing a fixed-effects panel quantile regression method, it highlights the varying impacts of different expenditure components. The findings reveal that expenditures targeting families and children, such as childcare services, family allowances, and educational support, have the strongest positive effect across all quantiles. Expenditures on sickness, disability, and unemployment also significantly reduce inequality, while housing and social exclusion expenditures show limited or no impact, suggesting areas for policy enhancement. Country-level differences are evident, with Scandinavian countries achieving better outcomes due to efficient policies, while Baltic and Eastern European countries face challenges in achieving similar effectiveness. Additionally, economic growth strengthens the impact of social transfers, whereas inflation and population growth negatively influence outcomes. These findings highlight the need for well-targeted and practical policies to make social protection spending more effective in reducing income inequality. Future research should focus on longer-term studies and better understanding differences between countries to guide policymakers.