Spending into poverty. The impact of social assistance schemes on asset accumulation among low-income households in 12 European countries
Social and Political Sciences European University Institute San Domenico di Fiesole, Italy
Generally, research on poverty and inequality has restricted itself to investigating income distribution patterns. Very little attention has been directed towards assets and wealth. Yet, while less important for everyday consumption, the assets one possesses might heavily impact on one's life chances, whether through providing a cushion for times of financial adversity or enabling investment. Although, clearly related to income, accumulation processes have a dynamic of their own. Previous studies have found that not only is wealth inequality several times larger than income disparity, but that the wealth gap can increase dramatically even when income inequality diminishes (Shapiro 2001).
Social policies have long constituted the main tool through which public intervention affected the income distribution. They have played a much less visible role in affecting patterns of wealth buildup. Yet, their potential in this respect is undoubtedly substantial. This paper sets out to investigate the impact that social assistance schemes have on asset accumulation among the poor. Social assistance programs are designed as a last resort safeguard against destitution. As such, they cannot be expected to significantly boost wealth among the poor. However, depending on how they define eligibility, they can actually diminish resources for the poor they can trigger a "spending" of assets, which may be harmful for low-income households in the long-run and actually make transition to self-reliance more difficult.
Using the EU-SILC database, eight Central European countries are analyzed. To facilitate comparison, a further four West European countries have been added, based on previous classifications of social assistance schemes (de Neubourg, Castonguay and Roelen 2007; Eardley et al. 1996; Gough et al. 1997). Results show that social assistance does little to prevent poor households from having to spend their asset resources. On the contrary, the results suggest that programs select their clients based on the absence of such resources and thus may be conveying negative incentives. Moreover, social assistance payments do not have a positive impact on the poor households' likelihood of having debts. Nonetheless, significant country variation exists. Schemes that are more decentralized and more discretionary have the strongest negative effects.