Is Social Protection a Luxury Good?
The claim that social protection is a luxury good—with a national income elasticity exceeding unity—has as been influential. The paper tests the “luxury good hypothesis” using newly-assembled data on social protection spending across countries since 1995, treating the pandemic period separately, as it entailed a large expansion in social protection efforts. While the mean income share devoted to social protection rises with income, this is attributable to multiple confounders, including relative prices, weak governance in low-income countries and access to information-communication technologies. Controlling for these, social protection is not a luxury good. This was also true during the pandemic.
The authors are with the World Bank, Georgetown University and the World Bank respectively. They are grateful to Harold Alderman, Aart Kraay, Peter Lindert, Franco Peracchi, Nithin Umapathi, Frank Vella and Dominique van de Walle for comments and/or discussions. Aylén Rodriguez Ferrari and Michael Gottschalk provided excellent assistance in data collection. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper’s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.