The Impact of Social Protection Expenditure on Poverty and Inequality in High‐ and Middle‐Income Countries

This study evaluates the effectiveness of social protection spending in reducing poverty and inequality across high‐ and middle‐income economies, offering direct insights for policy‐makers aiming to enhance equity outcomes. Specifically, it examines how such expenditures influence three key indicators: the headcount poverty rate, the Gini coefficient and the income share of the lowest decile. Drawing on a panel dataset of 74 countries spanning 1991–2021, we employ panel econometric techniques (e.g. GMM, 2SLS and Quantile regression) to evaluate the impact of social spending. Our results indicate that in high‐income countries, increased social protection spending is strongly associated with reductions in both poverty and inequality. By contrast, although this type of spending in middle‐income countries similarly reduces poverty, it paradoxically appears to diminish the income share of the lowest earners. Further analysis suggests that the interplay of corruption and e‐governance practices underlies these divergent outcomes, highlighting the importance of resilient governance in enhancing the equity effects of social policies. These findings suggest that effective public policies, especially with regard to income redistribution, should integrate anti‐corruption measures and e‐governance improvements alongside social protection spending to achieve sustained poverty reduction and equitable growth.