Anti-Poverty Effectiveness of Taxes and Income Transfers in Welfare States

This study aims to compare the anti-poverty effectiveness of taxes and income transfers among western welfare states. It is shown that countries' poverty outcome can be decomposed into the level of market-generated poverty, the overall level of welfare efforts, and the poverty reduction efficiency of taxes and transfers. Using the LIS microdata, the decomposition analysis suggests that welfare states differ widely with respect to the anti-poverty effectiveness of taxes and transfers and that cross-national variation in such effectiveness is mainly attributable to differences in the level of welfare efforts rather than in poverty reduction efficiency.