A political revolution now under way among Western countries may have drastic repercussions on the poor. For most of the post-war period, government programmes designed to raise the income share of the poor proliferated and expanded. In the wake of the world-wide slowdown in economic growth following the first oil embargo of 1973, critics argued that the gains from redistributional programmes are far outweighed by adverse side-effects that reduce work and savings. These arguments have been taken with increasing seriousness. In the United States, England, Germany, and even in the Netherlands and Scandinavia, public income transfer programmes have been or are being cut back. On the face of it, only France and Italy seem to be resisting this trend; Switzerland, though it partook in the rapid expansion of the earlier period, has temporarily reached a plateau in spending.

American social welfare spending, broadly defined, increased faster than GNP in the years 1950 to 1978. The extra spending was directed mainly at the traditional welfare population categories of the aged, disabled, and female family heads. The extra funds were provided chiefly by payroll taxes and wage diversions. The social benefits that flowed from the extra social welfare spending include improved economic security and reduction in income poverty. These benefits, which are non-quantifiable, are supplemented by the quantifiable addition to GNP which arises from a more highly-educated labour force. The quantifiable social costs associated with the extra social welfare spending include a loss of potential GNP due to induced reduction of hours at work and extra resources used up for education and health care. The reader's judgement of the worth of the non-quantifiable social benefits is critical to his or her overall evaluation.

The combination of economic recession and political reaction — which might be expected to lead to an increase in inequality — has been accompanied in the United Kingdom by an intellectual critique of the egalitarian impact of social welfare provision. This paper examines the pattern and trend of inequality and redistribution in recent years in the light of these economic, political and intellectual pressures. The paper demonstrates that inequality has increased since 1976 and that the increase has been more marked since 1979. The main factor causing this increase was the less equal distribution of market incomes, a major effect of the recession. Tax changes were a secondary factor, whilst changes in social benefit programmes had little effect. While social spending did not bring about greater overall equality, it combated and significantly modified the pressures towards greater inequality. The impact of recession is particularly apparent in the changing composition of the bottom of the income distribution: the elderly are being replaced by the unemployed as the inhabitants of the lowest levels of economic welfare.

First, we employ a methodology that decomposes the change in poverty into changes due to the means and variances of market and transfer incomes and to other factors which affect the shape of the income distribution. We then briefly describe the Reagan economic programme. Finally, we estimate a regression model that reflects changes in these moments of the income distribution to changes in the unemployment rates and to the Reagan programme. The regression estimates, together with the poverty rate decomposition, allow us to show that the administration's cuts in income-transfer programmes account for about 40 per cent of the recent rise in poverty and that increased unemployment accounts for about a third of the increase in poverty.

In this paper, we analyse the impact of government policies on income distribution and poverty in Switzerland. First, we give an overview of the Swiss welfare system and provide an estimate of the poverty problem in this country. Second, we discuss some major problems of fiscal incidence analysis. Third, we examine the impact of taxes and expenditures on income distribution in Switzerland using a budget incidence approach. The analysis is based mainly on the first nationwide representative Income and Wealth Survey 1980 conducted by the authors. The major findings are the following:

1 The government budget, including the social security system, has a significant redistributive effect which is due mainly to expenditures rather than to taxation.

2 Direct taxes reduce income inequality, measured by the Gini coefficient; indirect taxes increase it. The net effect of all taxes is to reduce income inequality.

3 The redistributive effect of social welfare expenditures is larger than that of other government expenditures.

The large and generous income transfer system in the Netherlands has caused increasing tax burdens and deficits in a period of sluggish economic growth. Confronted with this situation, the present Dutch government is trying to cut back the scope of the system substantially by reducing benefit levels. The distributional impact of this policy is simulated on a micro data set. It is found that the effects of the transfer cuts on overall income distribution are not very large: from 1983 to 1986, inequality as measured by the Gini or the Theil index increases by 3 per cent. However, inequality between working and non-working people as measured by the Theil index between groups is simulated to increase by as much as 50 per cent. On the other hand, people can be hypothesized to increase their work effort when benefit levels are lowered. Using a behavioural model, it is estimated that from 1983 to 1986 the working population might increase, ceteris paribus, by 0.5 per cent yearly as a consequence of the transfer cuts. This would imply second-round distributional effects mitigating the increase in overall inequality by one-third.

Italian social policies are divided between insurance and public assistance, an ambivalence that occasionally results in unequal treatment of equals and discriminatory distribution of benefits. Though expansion of social expenditures slowed after 1975, social programmes did not suffer real cuts until 1983. The effect of social policies on poverty is not direct: most recent changes in the income distribution reflect the effects of recession. Though the Italian share of GDP officially allocated to social expenditures is still below the average of that in other industrialized countries, resources available to the needy are understated because of informal channels within the institutional system. Although the data on income distribution are inadequate, improvements can be discerned in the lowest decile owing to transfer policies targeted on families during the 1970s. In general, the equalizing policies championed by the unions in the 1970s have improved the well-being of wage earners and salaried workers, as well as pensioners.

During the past four years, French economic and social policy appears to have differed both from the policies followed previously in France and from those of the other industrialized countries. The difference can be judged from the goals pursued, the means used and the results obtained. One of the goals of the socialist government elected in May 1981 was to reduce income and wealth inequalities and to improve the well-being of the poor through an active social and tax policy. This goal was also a means, since these measures — along with an expansionary fiscal policy — were supposed to precipitate economic recovery and to reduce unemployment by stimulating consumption expenditures. Actual developments, however, led to quite a radical change in French macro-economic policy. The fight against inflation and the reduction of internal and external deficits since June 1982 and the search for industrial investment and competitiveness since 1983 have reoriented both social and tax policies.