2026 Undergraduate Research Showcase

Progressivity and Prosperity: An Econometric Analysis of Redistributive Spending Structures and Inequality

Document Type

Student Presentation

Presentation Date

4-24-2026

Faculty Sponsor

Dr. Kelly Chen

Abstract

This paper investigates the redistributive capacity of the state by examining the efficacy of public social spending in reducing poverty and income inequality across OECD countries. While the theoretical consensus suggests that state-led fiscal transfers mitigate market-driven inequality, the tangible outcomes of such interventions often vary significantly. Utilizing a panel dataset of OECD nations spanning from 2000 to 2022, this study employs a fixed-effects econometric model—controlling for both unobserved country-specific heterogeneity and time shocks—to test the Redistributive Hypothesis. The primary model evaluates the impact of total social spending on the poverty rate, incorporating unemployment, tertiary educational attainment, and institutional quality (corruption) as macroeconomic covariates.

Empirical findings reveal a robust negative correlation between social spending and poverty levels, confirming that increased fiscal effort generally leads to higher income equality outcomes. However, by introducing an interaction term between social spending and corruption, the analysis demonstrates that the poverty-reducing impact of welfare capital is heavily moderated by institutional integrity. Where corruption is high, a "leaky bucket" effect diminishes the efficiency of redistributive policies. Furthermore, while unemployment exhibits a strong positive correlation with poverty—aligning with Keynesian labor market expectations—tertiary education displays limited explanatory power for the demographic most at risk of absolute poverty. Ultimately, this research underscores that while public social spending is a vital tool for poverty alleviation, its success is fundamentally conditional upon the transparency and quality of the implementing state apparatus.

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