Essay: Bringing down relative poverty
Economists plausibly argue that in countries with expansive welfare states, reining in deficits by cutting broad based health and pension benefits may well erode political support for additional transfers to low income citizens. We should note, however, that in countries with large welfare states, current transfer expenditures have already brought relative poverty down to six or seven percent In those countries there is less urgency to further reduce poverty by spending yet more on either universal or income-tested programs. Consequently, erosion of political support for more transfers may not have major negative consequences for poor members of those countries.
In the U.S., despite its comparatively low spending on transfers and high rate of poverty, large budget deficits are also likely to limit support for expanding income tested programs and for expensive new transfer programs. Here, this political dynamic could have serious consequences for the poor. Policy makers may, however, still agree to expand the Earned Income Tax Credit (EITC) and asset-building programs, both of which enjoy support across the political spectrum.
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