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Among the nations of Europe, do those with greater levels of welfare spending have lower levels of wealth inequality?

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A study published by the European Central Bank in 2016 found that European nations with greater levels of "welfare state spending" had higher levels of "wealth inequality." This is because "social services provided by the state are substitutes for private wealth accumulation," and when governments provide more welfare benefits, "there is less need for relatively poor households to hold precautionary savings, and more income might be used for consumption purposes." Also, taxes to fund these programs hinder people's ability to save money. In the U.S., middle-income workers lose about 15.3% of their paychecks to social insurance taxes. If these workers could have saved and invested a fifth of these taxes during their careers, each retired middle-income worker would have an additional $199,000 to $764,000 in savings today.

DocumentationEuropean Central Bank StudyWealth Inequality



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