Do Welfare States Reduce Poverty? A Critical Shortcoming in the Standard Analysis of the Anti-Poverty Effect of Welfare States

Hwanjoon Kim

No 233, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: A standard analysis of the anti-poverty effect of taxes and income transfers is to compare pre-tax-transfer poverty and post-tax-transfer poverty. A critical shortcoming of the standard approach is that it treats pre-tax-transfer poverty as given and ignores potential effects of taxes and transfers on pre-tax-transfer poverty. Using cross-national variation, this study examines potential endogeniety of pre-tax-transfer poverty. The results suggest that both the generosity and efficiency of the tax/transfer system may influence the level of pre-tax-transfer poverty. If this is true, the standard approach overestimates the anti-poverty effectiveness of generous and/or targeted welfare systems.

Pages: 31 pages
Date: 2000-07
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:lis:liswps:233

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