(or lower-quality) servicesrelative to theirneeds than higher-income groups, but may
still receive the largest aggregate amounts, simply because their needs are so much
greater. Sefton ( 2002 ) examines the UK distribution of what he calls the ‘‘social wage’’
(beneWts in kind from health care, education, social housing, and social care)
between income groups between 1979 and 2000. The results show that the poorest
Wfth of households receive, on average, around twice the value of services that the
richestWfth of households receive. Part of this pro-poor bias is accounted for by the
demographic composition of income groups: older people and children, who are the
most intensive users of welfare services, are disproportionately represented among
lower-income groups. But, a signiWcant pro-poor bias remains even after controlling
for demographic factors, because certain services are targeted at poorer households,
some services are strongly needs related (which skews them towards lower-income
groups), and higher-income groups are much more likely to use private education
and health care. Calero ( 2002 ) comes to very similar conclusion using Spanish data
for 1994 .HeWnds that age determines a considerable part of the distribution of
spending on cash beneWts and beneWts in kind, but that social spending also leads to
signiWcant reductions in inequalities between social classes.
Furthermore, neither of these studies takes into account the distributional eVects
of taxation. Most social spending isWnanced from general taxation so it is diYcult to
say deWnitively which taxes are used to pay for which services. However, on plausible
assumptions, allowing for taxation will substantially strengthen the redistributive
impact of welfare policies. This is because most forms of taxation are proportional to
incomes or progressive. Thus, even if spending on welfare programs were equal
across income groups, those on lower incomes would still be net gainers, simply
because they pay less tax into the system.
Having said this, some studies of individual policies or programs have shown
these are less redistributive than they may appear atWrst. Gustman and Steinmeier
( 2000 ), for example, show that the US social security beneWt system is not nearly as
progressive as a point-in-time examination of the beneWt formula would
suggest. Replacement rates are considerably lower for those with relatively high
average annual earnings over their lifetime than for those with low average earnings
(ranging from 15 up to 90 per cent in 2000 ), implying substantial redistribution from
high to low earners—and indeed this is the case at the level of the individual.
However, about half of this redistribution iswithinfamilies—from men to their
spouses, especially those who have spent large amounts of time out of the labor
market. There is much less redistribution from high- to low-income families. Simi-
larly, Liebman ( 2002 )Wnds that the extent of income-based redistribution is fairly
modest compared to the beneWts paid out by the social security system—only
between 5 and 9 per cent of the total. Much of the intra-cohort redistribution is
related to factors other than income, including from people with low to people with
high life expectancies and from single workers and two-earner couples to one-earner
couples. Since high-income families tend to have higher life expectancies and receive
larger spouse beneWts, a substantial part of the progressivity implicit in the basic
beneWt formula is oVset.
620 tom sefton