Income Distribution and Social Security in an OECD Perspective

The last two decades show an trend towards a less equal income distribution in OECD. There are many causes for this trend. This paper analysis whether changes in social security systems are one of these causes. For some OECD-countries we find a relationship between changing welfare state policies (as measured by expenditure ratios and replacement rates) and changing income inequality, but for others not. Especially the United Kingdom and the Netherlands combined an above average rise in inequality with a reduction in the generosity of the welfare system. For this reason we studied the case for the Netherlands in more detail. A budget incidence analysis for the period 1981-1997 indicates that changes in social policy indeed explain a large part of the increase in income inequality