Poverty alleviation and the degree of centralization in European schemes of social assistance

Article abstract:

In this paper, the relationship between the degree of centralization and the distributive outcomes in European schemes of social assistance is investigated. For this purpose, a scheme of classification suitable for grouping the EU15 schemes according to features related to centralization is established by using cluster analysis and an indicator for centralization is developed by employing multidimensional scaling. Subsequently, on the basis of Luxembourg Income Study (LIS) data, the effectiveness and efficiency in reducing poverty through social assistance payments are calculated using several measures of poverty for five selected EU systems and the linkage of their distributive impacts to the degree of centralization is examined. Concerning effectiveness in poverty alleviation, the results provide some evidence that extremely centralized systems are more effective with regard to redistribution than extremely decentralized schemes. However, for systems with a medium degree of centralization, the hypothesis that greater decentralization leads to more effectiveness is not supported. With respect to efficiency, no support is lent to the hypothesis that a higher degree of decentralization is accompanied by a better distributive efficiency. Rather, the results seem to suggest that systems with a medium degree of decentralization do better than either extremely centralized or extremely decentralized systems.