Income Distribution and Social Expenditure: Health, Education, and Cash

Timothy Smeeding, Syracuse University

Data from several sources are used to examine the cross-national effects of inequality on social expenditures in the form of health care, education and cash. We find that the inequality between the middle class and the poor (as measured by the 50/10 percentile ratio of market income) has a small, positive impact on spending. But we also find that inequality between the top end of the distribution and middle class (measured by the 90/50 percentile ratio) has a large and negative impact on social spending. Measures of demographic composition, immigrants and trust are shown to also have a significant impact on spending. Our results suggest that as the "rich" become more distant from the middle class, they opt out of public programs. This implies that rising inequality will erode support for social institutions and social support that provides insurance against income loss, upward mobility and equal opportunity.