Welfare's effect on poverty

The relationship between poverty reduction and differing levels of welfare expense as a percentage of GDP.

The effects of social welfare on poverty have been the subject of various studies.

Studies have shown that in welfare states, poverty decreases after countries adopt welfare programs. Empirical evidence suggests that taxes and transfers considerably reduce poverty in most countries whose welfare states commonly constitute at least a fifth of GDP. In 2013, the Organisation for Economic Co-operation and Development asserted that welfare spending is vital in reducing the ever-expanding global wealth gap.

Table of effect

Countries' income inequality as of 2018 according to their Gini coefficients.

World map indicating the Human Development Index in 2015

Timothy Smeeding used data from the Luxembourg Income Study to determine the effectiveness of anti-poverty and welfare programs on poverty reduction. The data for all the countries was from the year 2000 with the exception of the United Kingdom and the Netherlands for which the data was from 1999.

Country	Social expenditures on non-elderly (as percentage of GDP)	Total percent of poverty reduced
United States	2.3	26.4
Netherlands	9.6	65.2
Sweden	11.6	77.4
Germany	7.3	70.5
Canada	5.8	46.0
Finland	10.9	69.7
United Kingdom	7.1	60.1
Belgium	9.3	76.9
Austria	7.4	75.8
Italy	4.3	57.7
Ireland	5.5	44.1
Average	7.4	60.9

Table of poverty levels pre- and post-welfare

The absolute poverty rates of various countries before and after their introduction of welfare

The relative poverty rates before and after the introduction of welfare of various countries

Two studies compare countries internationally before and after implementing social welfare programs. Using data from the Luxembourg Income Study, Bradley et al. and Lane Kenworthy measure the poverty rates both in relative terms (poverty defined by the respective governments) and absolute terms (poverty defined by 40% of United States median income), respectively. Kenworthy's study also adjusts for economic performance and shows that the economy made no significant difference in uplifting people out of poverty.

The studies look at the different countries from 1960 to 1991 (Kenworthy) and from 1970 to 1997 (Bradley et al.). Both these periods are roughly when major welfare programs were implemented such as the War on Poverty in the United States. The results of both studies show that poverty has been significantly reduced during the periods when major welfare programs were created.

Country	Absolute poverty rate (1960–1991) (threshold set at 40% of United States median household income)		Relative poverty rate (1970–1997)
	Pre-welfare	Post-welfare	Pre-welfare	Post-welfare
Sweden	23.7	5.8	14.8	4.8
Norway	9.2	1.7	12.4	4.0
Netherlands	22.1	7.3	18.5	11.5
Finland	11.9	3.7	12.4	3.1
Denmark	26.4	5.9	17.4	4.8
Germany	15.2	4.3	9.7	5.1
Switzerland	12.5	3.8	10.9	9.1
Canada	22.5	6.5	17.1	11.9
France	36.1	9.8	21.8	6.1
Belgium	26.8	6.0	19.5	4.1
Australia	23.3	11.9	16.2	9.2
United Kingdom	16.8	8.7	16.4	8.2
United States	21.0	11.7	17.2	15.1
Italy	30.7	14.3	19.7	9.1

See also

• Basic income
• Criticisms of welfare
• Involuntary unemployment
• Welfare economics
• Welfare trap
• Welfare dependency