New Report: Are Expansive Welfare Programs the Most Effective?

America’s less expansive entitlement programs are more effective than Europe’s at improving standards of living because they target the most needy 

NEW YORK, NY — The U.S. welfare state is often disparaged for failing to distribute benefits to all citizens. Yet economists at the World Inequality Lab of the Paris School of Economics recently calculated that, compared with European nations, the U.S. stands out as the country that redistributes the greatest fraction of national income to the bottom 50%. How is the American welfare state outperforming many European welfare states—and its bad reputation? 

In a new Manhattan Institute report, senior fellow Chris Pope explains that the U.S. welfare model does a better job at targeting expenditures to those who need it most. Europe’s welfare states are dominated by costly publicly funded “social insurance” programs, which attempt to fully support middle-class lifestyles through periods of unemployment, ill-health, disability, or retirement. By contrast, American public entitlement programs are more focused on providing a safety net against poverty, and more strictly limit eligibility for cash and healthcare benefits to those who are unable to work.   

The idea that expansive European welfare states are helping the working poor has little basis. They are mostly redistributing from the working poor to non-workers of all social classes. When eligibility for public entitlement programs is limited to cases where poor households have suffered misfortunes beyond their control, then these programs can leave those in the greatest need better off. But the more entitlement programs are expanded beyond this group, the more additional expenditure serves merely to displace people providing for themselves. To cover costs, European states must also take more taxes from those of modest means, exceeding the aid they may gain from public funds. The distinctive feature of progressive tax systems in the modern world is not high taxes on the rich, but lower taxes on the non-rich. 

Click here to view the full report.