Price Fishback’s paper suggesting that the US welfare state is bigger than Sweden’s and Denmark’s got a lot of attention a few weeks back on the right side of the blogosphere. Since I outsource most of my thinking on statistical comparisons of the welfare state to Lane Kenworthy, I’ve been waiting for him to assess the argument. He finally has.
This looks like good news for the poor in the United States. Is it? Unfortunately, no. These adjustments change the story with respect to the aggregate quantity of resources spent on social protection in the three countries, but they have limited bearing on redistribution and on the living standards of the poor. … Begin with tax breaks. … . In the United States these disproportionately go to the affluent and the middle class. … Public transfer programs in Denmark and Sweden tend to be “universal” in design … To make them more affordable, the government claws back some of the benefit by taxing it as though it were regular income. All countries do this, including the United States, but the Nordic countries do it more extensively. So how well-off are the poor in the United States, with its “hidden welfare state,” compared to social-democratic Denmark and Sweden? One measure is average posttransfer-posttax (“disposable”) income among households in the bottom decile of the income distribution. Here are my calculations using the best available comparative data, from the Luxembourg Income Study (LIS). (The numbers are adjusted for household size. They refer to a household with a single adult. For a family of four, multiply by two.)
Government services — medical care, child care, housing, transportation, and so on — reduce material hardship directly. They also free up income to be spent on other needs. The comparative data, though by no means perfect, are consistent with the hypothesis that public services help the poor more in the Nordic countries than in the United States.
Helping the poor is not, of course, the only thing we want from social spending. But it surely is one thing.