Welfare State Causes Wealth Inequality —Euro Experience

Chris EdwardsDemocrats running for president are condemning wealth inequality while calling for an increase in social spending. But expanding social spending would magnify wealth inequality, not reduce it, because it would displace private wealth accumulation by lower- and middle-income households.Evidence comes froma study by Pirmin Fessler and Martin Schurz for the European Central Bank. The authors explore the relationship between government social spending and wealth distribution in 13 European countries using a survey database of 62,000 households. The database contains household balance sheet information.Regression analyses by the authors confirm that “the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social services provided by the state are substitutes for private wealth accumulation and partly explain observed differences in levels of household net wealth acr oss European countries.”The authorsfound that the “measured inequality of wealth is higher in countries with a relatively more developed welfare state.” Why is this the case?The substitution effect of welfare state expenditures with regard to private wealth holdings is significant along the full net wealth distribution, but is relatively lower at higher levels of net wealth. Given an increase in welfare state expenditure, the percentage decrease in net wealth of poorer households is relatively stronger than for households...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs