The End of Cheap Talk About Poverty Reduction
Available evidence suggests that social investment and employment strategies are important but not sufficient for poverty reduction. Thus, European Union countries must not only develop effective employment policies but also ensure adequate social protection. This would require increasing social transfers for working and nonworking households, while protecting work incentives. In this chapter, we show that this is not an inexpensive option. We calculate the hypothetical cost of closing the poverty gap while maintaining the existing average labor-market participation incentives at the bottom of the income distribution. We do so in three types of welfare regimes, namely those of Belgium, Denmark, and the United Kingdom. Results show that this would require around two times the budget needed just to lift all disposable household incomes to the poverty threshold. The cost would obviously be lower in countries with smaller poverty gaps and with weaker participation incentives.