My CBPP colleague Indivar Dutta-Gupta recently posted this analysis of pre- and post-transfer poverty rates across advanced economies. The blue bars are the share of people who are poor—defined here as living in households whose income is less than half the median (about $25K in the US)—based solely on market incomes, i.e., before the system of taxes and transfers kicks in.
There are at least two notable points to take from such a comparison. First, the rates of poverty that result from market outcomes are not as different across countries as you might have thought. Many people, for example, tend to think of Scandinavian economies as generating a lot less poverty than the US, but looking across Denmark, Sweden, and Norway, the rates of market-driven poverty are all pretty close to that of the US—around 25%.
France and Germany have considerably worse market outcomes than we do over here.
The differences in international poverty rates don’t really show up until we factor in the impact of taxes and transfers on market outcomes. Here the US is clear laggard. The second figure shows the percent of market poverty reduced by taxes and transfers. Our system provides the least amount of poverty reduction (35%), about half the average across the countries in the figure (avg without US: 66%).
Source: Figure 1.
It used to be argued that we in the US were trading off a stingier system of social protections in order to achieve stronger growth, implying that the more redistributive systems were disincentivizing investment, job creation, and work effort. But that case never held up to scrutiny. There are many different growth models out there and based on job and income growth, productivity, unemployment, inequality, or mobility the US does not dominate Europe or Scandinavia.
And re poverty reduction, they do a lot better.