Main menu

Skip main menu

• INSEE and official statistics
• Topics
• Databases
• Publications and services
• Regions
• Definitions and methods
• Publics

Transfers in kind attenuate income inequality

Sylvie Le Laidier, National Accounts Department, INSEE

Summary

In 2003, households received EUR230 billion in transfers in kind, mostly for education and healthcare. These transfers represented 23% of their disposable income and supplemented transfers in cash. They also helped to reduce the living-standards gap between the poorest and most affluent households: the ratio narrowed from 1:5 before transfers in kind to 1:3.2 after. The lowest-income households and families benefit the most from education-related transfers, while the oldest households are the main recipients of health-related transfers.

Contents

• Transfers in kind totalled €230 billion in 2003
• Transfers in kind help to reduce inequality between households
• Education expenditures contribute more than health expenditures to reducing inequality
• Health and education account for one third of actual consumption by the least well-off households
• Health-related transfers in kind are the largest category for the oldest households
• Education-related transfers in kind are significant for single-parent families

Publication

Transfers in kind totalled €230 billion in 2003

Several types of transfers from general government contribute to household income. Households receive not only social transfers “in cash” in the form of social benefits but also transfers in kind in the form of services provided free or nearly free of charge. On the other hand, they pay direct taxes and social contributions. In the national accounts, transfers in cash including taxes, social contributions, and social benefits are subtracted from or added to primary income, i.e., the income that households generate from paid employment or self-employment as well as from their assets. The total constitutes “gross disposable income” (table 1).

Transfers in cash are a component of what is commonly known as redistribution. The most modest households receive positive net transfers in cash (chart 1). By contrast, these transfers are sharply negative for the 20% best-off households. The income of the least affluent households are slightly less impacted by direct taxes (definitions) and social contributions: these levies account for 37% of their primary income, versus 41% for the best-off households. At the same time, because of their low income, the least affluent households receive more social benefits in cash in the form of basic income support, family benefits, and unemployment benefits. These benefits in cash account for 71% of their primary income, versus 23% for the best-off households, whose benefits consist largely of retirement pensions.

Back to contents

Transfers in kind help to reduce inequality between households

Social transfers in kind also play a decisive role in redistribution. In 2003, they reached EUR230 billion, i.e., an average of EUR9,110 per household or EUR5,750 per consumption unit (CU). This amount represents 23% of gross disposable income and 22% of actual final consumption.

Healthcare services and education account for 43% and 33% respectively of transfers in kind. Transfers also include spending on social programs (6%), such as childcare allowances, support for the disabled and the elderly (“personalized autonomy allowance”: Allocation Personnalisée d'Autonomie) housing allowances (4%), and endowments for recreational, cultural, and sports activities (7%).

Transfers in kind are added to gross disposable income to form what national accountants call adjusted gross disposable income. Measured by consumption unit, the inclusion of transfers in kind shifts the gross disposable income (GDI) ratio between the poorest 20% (“quintile”) and the best-off 20% of households from 1:5 to 1:3.2. The transfers also reduce the gap in actual final consumption to 1:2.2. Before social transfers in kind, final consumption expenditures by the most modest households are less than one-third of those by the best-off households. Social transfers in kind contribute 43% to actual final consumption of the least well-off households compared with 13% for the best-off households.

At EUR7,400 per consumption unit, social transfers in kind to the poorest 20% of households accounted for almost three-quarters of GDI in 2003, nearly matching their primary income. In particular, the most modest households receive means-tested allowances and benefits, such as housing allowances and universal health insurance, which covers the deductible usually paid by the household. Because social transfers in kind decrease with income, they make up only 10% of GDI for the best-off households, or 8% of their primary income.

Back to contents

Education expenditures contribute more than health expenditures to reducing inequality

The largest category of social transfers in kind consists of health-expenditure coverage. However, education expenditures have a slightly more discriminating effect and, also because of their significant share, contribute more strongly to reducing inequality. The most modest 20% of households receive 28% of education expenditures, versus 21% of health expenditures. As they also receive 70% of housing subsidies, they collect one-quarter of total social transfers in kind (table 2).

Only households with the lowest living standards (definitions) receive slightly more in education-related transfers than in health-related transfers. The explanation is that this category comprises the highest proportion of three-children households as well as young households, including a significant number of students living alone. The youngest, who receive the largest share of education expenditures, also consume less healthcare.

The best-off households account for 42% of total primary income before transfers; their share of disposable income is 40% after transfers in cash, defined as the difference between (1) taxes and social contributions and (2) social benefits paid to households in cash; their share of disposable income adjusted for transfers in kind is 36%. Broadly speaking, the redistribution system has no impact on the 20% of households in the middle of the distribution, who receive 17% of total income both before and after transfers. At the bottom of the scale, the poorest households have 5% of total primary income. The distribution effected via transfers in cash and in kind leaves them with 8% of disposable income and 11% of adjusted disposable income. The inclusion of transfers in kind also significantly modifies the consumption profile of these lowest-income households.

Back to contents

Health and education account for one third of actual consumption by the least well-off households

Housing (including heating, electricity, gas, and water), transport, and food account for more than one-half of final consumption expenditures, irrespective of household living standards. After factoring in the consumption represented by social transfers in kind, the share of the three categories in household consumption is considerably reduced—particularly for the most modest households, who receive a large share of social transfers in kind (chart 2).

In sum, for the poorest households, consumption represented by transfers in kind is equal to 43% of actual final consumption. As a result, health (18%) and education (16%) outweigh food (11%) among actual consumption items. By contrast, in cash expenditure terms, food accounts for 20% and health and education for far less (5% and 1% respectively). For the most affluent households, the consumption profile is less distorted: social transfers in kind account for only 13% of actual consumption, raising the share of health expenditures from 2% to 8% and that of education expenditures from 1% to 5%.

Back to contents

Health-related transfers in kind are the largest category for the oldest households

Health-related social transfers in kind account for 78% of total transfers for the oldest households (aged 70+), versus 43% for all households. The share is a still-high 68% for households whose reference person is aged 60-69. The oldest households also receive specific allowances (chart 3).

Health is the largest actual consumption item for the oldest households as well. Its share slightly exceeds housing-related expenses at 25% versus 24%, well ahead of food at 14%. Before transfers, the three items represent 6%, 32%, and 18% respectively of total expenditures in this age category.

Back to contents

Education-related transfers in kind are significant for single-parent families

Education-related transfers naturally increase with the number of children per family. They are the largest category for couples with three children or more, for whom they represent 61% of transfers versus 33% for all households. Their share remains significant at 52% of transfers for two-children families and 48% for single-parent families (chart 4). The latter—along with the largest families—are also the main recipients of housing allowances.

Transfers in kind boost the gross disposable income of single-parent families by 38% and account for 30% of their actual final consumption. Likewise, couples with three or more children benefit substantially from education expenditures for their schooled children: transfers constitute one-third of their actual final consumption, as against slightly over one-fifth for all households.

Couples without children or who no longer have dependent children receive proportionally fewer transfers, and most of these (69%) are health-related. The explanation is that over half of these couples are aged 60+, and more than one-quarter are aged 70+.

Back to contents

bottom-cross links

• 
• Newsletter
• Sitemap
• Buy publications

• © Insee
• Legal notice and credits
• Data.gouv.fr