Social policy and income distribution: An empirical analysis for the Netherlands

In most OECD-countries income inequality has increased during the last two decades. In this paper, we\ninvestigate to what extent changes in the overall distribution of incomes can be attributed to social policy\nmeasures. The case for the Netherlands is particularly interesting, because the Dutch welfare state has\nbeen reformed rather fundamentally in recent years.\nThe budget incidence analysis indicates that in the period 1981-1996 inequality of adjusted disposable\nhousehold income increased sharply. The main force behind this phenomenon was a more unequal\ndistribution of market incomes, but social transfers also explain a substantial large part of the rise in\ninequality. Social security reforms indeed seem to have made the income distribution less equal.\nThe results of a more detailed analysis for 1996 on the redistributive impact of social policy and of specific\nsocial programs - using data from an unique income panel survey - can be summarised as follows:\n- The first five income deciles clearly gain from social security, while the higher deciles loose. Social\nsecurity causes a reduction in inequality by 26 to 50 percent, depending on the indicator used.\n- The public old age program and the social assistance program explain by far the largest part of\nredistribution by the social system, while the disability and unemployment programs do not have strong\nredistributive effects.