The impact of social protection benefits on income distribution in OECD countries: Panel analysis

Income inequality, namely the unequal distribution of income, emerges as a significant global problem not only in less developed and developing countries but also in countries with advanced economies. For this reason, revealing the effects of social protection benefits on income inequality is of great importance in terms of both academic literature and the planning and implementation of fiscal policies. In this study, the effect of social protection expenditures on income inequality in 21 selected OECD countries was examined using the panel data analysis method for the period between 2008 and 2021. In the analysis conducted in the study, the Gini coefficient was used as the dependent variable to represent income inequality, while social protection benefits were used as the independent variable. One of the distinctive aspects of this study is that the analysis was carried out using two different models. In the first model established, the effect of social protection benefits on the Gini coefficient at the total level was tested. Within the framework of the results obtained, it was revealed that social protection benefits have a statistically significant and negative effect on the Gini coefficient, indicating that an increase in social expenditure reduces the deepening of income inequality. In the second model of the study, the subcomponents of general social protection benefits—comprising health benefits, family benefits, survivors' benefits, old-age benefits, and disability benefits—were examined separately, and the effects of these variables on the Gini coefficient were analyzed. According to the results of the analysis, health benefits, family benefits, and survivors' benefits have a significant and positive effect in ensuring fairness in income distribution, that is, in improving income inequality. Among these subcomponents, family benefits were found to provide the strongest contribution to promoting equity in income distribution. In contrast, old-age benefits were found to have an inequality-increasing effect, while disability benefits were found to have no significant impact on income inequality. The results of the analysis reveal the potential of social protection benefits to improve income distribution not only at the aggregate level but also through their subcomponents. The contribution of this study to the literature lies in evaluating the subcomponents of social protection benefits separately and demonstrating which subcomponent plays a more effective role in reducing the Gini coefficient. Consequently, it provides empirical evidence for directing resources in the most efficient manner in the design and implementation of social protection policies.