Lean and Just? Social Protection Spending and Inequality Outcomes across Europe

Alex Pienkowski, Valentina Semenova, Ian Stuart and Yuntian Lu

No 2026/078, IMF Working Papers from International Monetary Fund

Abstract: European governments face tight fiscal constraints amid rising debt and mounting demands from aging, health, defense, and climate spending, while scope to raise taxes is limited. This paper benchmarks the distributional efficiency of non-old-age social protection across Europe using harmonized EU-SILC microdata: defining efficiency as the reduction in the Gini coefficient per euro of transfers. We estimate an efficiency frontier and document large cross-country dispersion: countries with similar spending levels achieve markedly different inequality outcomes. Moving toward the frontier implies potential savings of about 0.7 percent of GDP on average. Complementing this cross-sectional lens, we examine how inequality reduction changes with each additional euro of transfers as coverage extends beyond poorer households. We show that marginal gains typically decline and can eventually turn negative, helping to identify spending components with limited distributional payoff. While social protection serves many important objectives beyond redistribution, our metric provides a transparent, comparable benchmark for assessing where fiscal space may be created with minimal impact on inequality and poverty.

Keywords: Inequality; fiscal incidence; expenditure; redistribution; survey data; efficiency frontier; IMF working papers; protection spending; expenditure trend; trends in Europe; Income inequality; Social protection spending; Aging; Income distribution; Pensions; Europe; Global (search for similar items in EconPapers)
Pages: 21
Date: 2026-04-10
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