Welfare Marketization, Tax Reform, and Redistribution: Cross-National Findings

Welfare states in the highly developed world of welfare capitalism still limit economic inequality. For Western Europe, many studies suggest that inequality of primary income (salary, return on capital) is reduced by public social transfers and progressive taxation. However, neoliberals argue that private organizations supply cheaper and better services than the welfare state while OECD-statistics show that private social expenditure (mandatory and voluntary) has gained importance. Further, neoliberals claim that taxes are too high for workers and companies. As a result, in many countries, taxes on top income and on top wealth have decreased.

In comparative social policy research, there is a controversy regarding whether these trends affect the extent of redistribution. Thus, rising old age and disability expenditures foster redistribution whereas trends in taxation imply less redistribution. In consequence, the redistributive impact of social transfers increases while the impact of taxes decreases.

My presentation focuses on three issues referring to OECD data. First, I discuss the extent to which public and private social expenditures affect economic inequality. Contrary to private social services, social transfers provided by the welfare state reduce primary income inequality. Hence, redistribution to the poor might decrease if private social expenditure substitutes public social expenditure. Second, I focus on the impact of current tax reform. Multivariate analyses suggest that redistribution is indeed lower than direct income taxes and social security contributions. In contrast, indirect taxation and progressivity of taxes don't matter. Finally, a redistribution regime typology is presented that discerns, among others, between a small cluster of countries with high public social expenditures, high income taxes, high social security contributions, and high redistribution (Belgium, Denmark) and a cluster with very low levels on each dimension (Chile, Mexico, South Korea).