Spending on family and old age benefits in eight OECD countries

Last week’s entry highlighted that public spending on family-related benefits has fallen as a share of total social protection expenditure between 2008 and 2012 in the majority of European Union countries, just as spending on old age benefits was rising. Since Eurostat does not tend to report on non-European OECD countries, a number of high income states were notably missing from the picture.

To rectify this omission, the figure below includes eight OECD countries that are not covered in the Eurostat system. It plots the absolute change in spending on family benefits as a share of total general government expenditure (blue bars), overlaying the corresponding change in old age spending (orange bars) between 2008 and 2011, the latest year for which comparable figures are available. The data come from the OECD Social Expenditure Database (SOCX).

Australia is the only country where the share of family-related spending decreased by more than one percentage point between 2008 and 2011. The decline is largely due to expenditure on family benefits having peaked at 9% in 2008 and then returning to the previous level (around 7%). Spending on old age benefits has remained stable in the meantime.

In contrast, old age spending went up in Mexico as a share of total government expenditure, while spending on family benefits remained unchanged.

In Israel, New Zealand and the United States, spending on families remained stable while the share of old age spending increased somewhat. In Canada, both family-related and old age spending were virtually unchanged.

In Japan and the Republic of Korea, modest increases in family spending were accompanied by comparable increases in old age expenditure, as a percentage of total government spending.

However, focusing on modest changes over time hides the marked variation in the shares of spending on family and old age benefits across these countries. In 2011, family-related spending ranged from 3% of total government expenditure in Canada, Japan and the Republic of Korea to just under 8% in Australia and New Zealand. The corresponding share of old age spending varied from 7% in Mexico and the Republic of Korea to 25% in Japan.

Source: OECD.Stat – Social Expenditure (data extracted on Data extracted on 15 Dec 2014).
Source: OECD.Stat – Social Expenditure (data extracted on Data extracted on 15 Dec 2014).

Disclaimer: the views expressed in this post are the responsibility of the author alone.

Spending on family and old age benefits in eight OECD countries

Spending on children falls, while old age spending goes up in the EU

Spending on family-related benefits has fallen as a share of total social protection expenditure between 2008 and 2012 in 17 European countries out of 32 for which comparable data are available from Eurostat. Increases in spending on families and children were recorded in only two countries, Germany and Bulgaria. In 13 countries expenditure on family-related benefits has remained virtually unchanged as a share of the total (i.e. within 0.50 percentage points of the 2008 level). In contrast, spending on old age benefits increased in 24 countries, remained unchanged in four countries and decreased in only three (Ireland, Germany and Switzerland). In 2012, the share of old age spending ranged from 20% in Ireland to 54% in Latvia, while the share of family/children spending ranged from 3% in Turkey to 16% in Luxembourg.

Source: Eurostat (last update 12.11.2014).
Source: Eurostat (last update 12.11.2014).

Since both family and old age spending are analysed as a proportion of the total social protection expenditure, when more resources are used for one type of spending, there may be less left for another. Indeed, there is a statistically significant negative correlation between the percentage point change in family spending and the change in old age spending between 2008 and 2012 (r=-0.36, p<0.05). By and large, increases in old age spending are associated with decreases in spending on family-related benefits. Removing one obvious outlier, Ireland, where both family and old age spending decreased as shares of the total, would produce a much stronger correlation of -0.53 (p<0.01).

Source: Eurostat (last update 12.11.2014).
Source: Eurostat (last update 12.11.2014).

Strikingly, monetary child poverty went up to a greater extent (or decreased by a smaller amount) in countries that increased the share of old age spending (r=0.47, p<0.01). This might be because when old age spending goes up as a share of total expenditure, there is less left for working-age benefits, such as family/children, unemployment, and housing, which are all relevant to children’s material conditions during the economic crisis. Although this finding needs to be interpreted with extreme caution, because other relevant factors have not been taken into account, this evidence suggests that countries that prioritised spending on pensioners during the crisis left children and families economically vulnerable.

Source: Eurostat (last update 12.11.2014).
Source: Eurostat (last update 12.11.2014).

Disclaimer: the views expressed in this post are the responsibility of the author alone.

Spending on children falls, while old age spending goes up in the EU