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Grupo de Estudos Monetários e Financeiros

Estudo do GEMF n.º 09/2016


The relationship between social transfers and poverty reduction: A nonparametric approach for the EU-27

Nuno Baetas da Silva & João Sousa Andrade
Faculdade de Economia da Universidade de Coimbra
Grupo de Estudos Monetários e Financeiros (GEMF)


Poverty reduction is one of the most important goals of developed welfare states. Among others, expenditures on social transfers consist in an important instrument for that goal. Using a nonparametric panel data model for the EU-27, for the period 2003-2013, this article studies the role of social transfers in combating poverty, allowing for the detection of saturation points and structural breaks between periods. Controlling for demographic and economic conditions specific to each country, we find a positive relationship between poverty gains and social transfers for values below 27% of GDP. Above that saturation point, expenditures on social transfers describe a situation of total inefficiency. The results suggest that Finland, Hungary and Luxembourg are the most efficient countries in reducing poverty via social transfers, whereas Greece, Portugal and Spain are the least efficient among the EU-27. We also conclude that social transfers are less efficient in the crisis period (2008-2013).

Keywords: Poverty measure, social transfers, efficiency and nonparametric econometrics.

JEL classification: C14, D61, H55, I3

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