THE IMPACT OF EDUCATION, HEALTH, AND SOCIAL EXPENDITURES ON INCOME DISTRIBUTION IN EU-27 COUNTRIES: A PANEL DATA ANALYSIS

Abstract

Public expenditures on education, health, and social services improve individuals’ knowledge, skills, and overall quality of life, thereby enhancing the access of low-income groups to economic opportunities and contributing to the reduction of income inequality. As the effectiveness of these public expenditures increases, the redistributive impact of public policies strengthens, supporting the emergence of a more equitable income distribution. This study investigates the effects of education, health, and social expenditures on income distribution in 27 European Union countries over the period 2015–2023 using panel data analysis. According to the results of the panel FMOLS (Fully Modified Ordinary Least Squares) estimation, health and social expenditures exhibit a significant inequality-reducing effect. Specifically, a 1% increase in health expenditures decreases the Gini coefficient by an average of 0.0043 points, while a similar increase in social expenditures leads to an improvement of approximately 0.0021 points. In contrast, education expenditures do not show a statistically significant effect on income distribution. Furthermore, the results of the Granger (1969) panel causality test reveal bidirectional causality between education and health expenditures, as well as between health and social expenditures, whereas no significant causal relationships are detected among the other variables.