Transfers in kind attenuate income inequality

Sylvie Le Laidier, National Accounts Department, INSEE

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.

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.

Table 1 – Impact of social transfers in kind by household living standards in 2003

Impact of social transfers in kind by household living standards in 2003
Average annual amounts per consumption unit, in euros
  Q1 Q2 Q3 Q4 Q5 Q5/Q1 Total
Balance of primary incomes 7,510 17,210 24,380 32,830 60,620 8.1 28,590
Direct taxes and social contributions −2,760 −6,590 −9,730 −13,510 −24,710   −11,490
Social benefits and other transfers in cash 5,320 5,790 6,390 7,430 14,120   7,810
Gross disposable income (GDI) 10,080 16,410 21,040 26,750 50,030 5.0 24,910
Social transfers in kind 7,400 5,940 5,380 5,000 5,110 0.7 5,750
Adjusted gross disposable income (AGDI) (after social transfers in kind) 17,480 22,350 26,420 31,750 55,140 3.2 30,660
Final consumption expenditure 9,930 15,450 19,760 24,420 33,140 3.3 20,590
Actual final consumption 17,330 21,390 25,140 29,420 38,250 2.2 26,340
Social transfers in kind (% of GDI) 73 36 26 19 10   23
Social transfers in kind (% of actual final consumption) 43 28 21 17 13   22
  • Note: Households are classified into five groups (quintiles Q1 to Q5) by increasing living standards. Each quintile is equal to 20% of the total and comprises five million households.
  • Source: National accounts, base 2000, INSEE.

Chart 1 – Transfers and levies as a proportion of primary income in 2003

  • Source: National accounts, base 2000, INSEE.

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.

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.

Table 2 – Education-related transfers played a greater role in reducing inequality in 2003

Education-related transfers played a greater role in reducing inequality in 2003
Q1 Q2 Q3 Q4 Q5 Total (%) Total (billion euros)
Balance of primary incomes 5 12 17 24 42 100 1,140.2
Direct taxes 3 7 12 21 57 100 −137.7
Social contributions 5 13 19 25 37 100 −320.7
Social benefits and other transfers in cash 13 15 17 19 36 100 311.6
Gross disposable income (GDI 8 13 17 22 40 100 993.4
Social transfers in kind, of which: 25 21 19 18 18 100 229.5
health 21 22 21 18 19 100 97.8
education 28 20 19 18 15 100 75.1
housing 70 23 5 1 1 100 10.2
Adjusted gross disposable income AGDI (after social transfers in kind) 11 15 17 21 36 100 1,222.9
  • How to read this chart: In 2003, the primary income of households totalled EUR1,140.2 billion. The least well-off 20% of households received 5% of that total income.
  • Source: National accounts, base 2000, INSEE.

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%.

Chart 2 – Structure of final consumption expenditures and average actual final consumption per consumption unit in 2003

  • FCE: final consumption expenditures; AFC: actual final consumption.
  • Source: National accounts, base 2000, INSEE.

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.

Chart 3 – Social transfers in kind per consumption unit by age of head of household in 2003

  • Source: National accounts, base 2000, INSEE.

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+.

Chart 4 – Social transfers in kind per consumption unit by household composition in 2003

  • Source: National accounts, base 2000, INSEE


The breakdown of the household account is based on 2003 national-accounts data and on five INSEE surveys on income and consumption: the 2004 statistics on income and living conditions (SILC), the 2003 Taxable Income Survey, the 2006 Family Budget Survey, the 2002 Housing Survey, and the 2003 Health Survey matched with data from the national information system linking the sickness-insurance funds. Sociodemographic data are drawn from the Labour Force Survey and the 2003 satellite account for housing. We applied the INES (INSEE - Études Sociales) model for the breakdown by household of transfers in kind concerning education, childcare, the elderly, and the disabled.


In national accounting, social transfers in kind are individual goods and services provided to households by government units or not-for-profit institutions serving households (NPISHs) free of charge or at prices that are not economically significant. They include: social benefits in kind that fall within the scope of social protection, i.e., market goods and services supplied directly by general government and those that recipient households purchase themselves and for which they are later reimbursed (medicines, healthcare); transfers of non-market individual goods and services, particularly education and health; these services are valued at the sum of production costs.

Social transfers in kind are added to final household consumption expenditures to form actual final consumption, which therefore includes all goods and services actually used or consumed, regardless of how they are paid for. Consequently, each item of actual consumption includes the share paid by the household (consumption expenditures) and the share covered by the corresponding transfer in kind.

To finance households’ actual final consumption, social transfers in kind are also added to gross disposable income.The sum is called adjusted gross disposable income.

A household’s disposable income includes income from economic activity (compensation of employees or mixed income), property income, social benefits (basic income support, family allowances, retirement pensions, unemployment benefits, sickness-insurance benefits, and maternity benefits) and other transfers in cash, net of direct taxes and social contributions.

The main direct taxes included in the computation are: income tax, occupancy tax, and two levies on taxable income earmarked for social-insurance funds: the Contribution Sociale Généralisée (CSG) and the Contribution au Remboursement de la Dette Sociale (CRDS).

As social transfers in kind are added to households’ final consumption expenditures and gross disposable income, household saving is not impacted by this accounting method, which allows comparisons between countries that provide or finance such services differently.

Primary income includes income directly linked to household participation in the production process, whether in a paid- employment or self-employment capacity. Most primary income of households consists of compensation of employees, which encompasses wages and social contributions. Primary income also includes income generated by assets, such as interest, dividends, and real-estate income.

To compare household living standards, consumption per capita does not suffice, as a household’s needs do not increase in strict proportion to its size. When several people live together, it is not necessary to multiply all consumer goods —in particular, consumer durables—by the number of household members in order to maintain constant living standards. Accordingly, to compare living standards of households of different sizes and composition, statisticians use a measure of income adjusted by consumption unit (CU) with the aid of an equivalence scale. The scale in widest use today (called the OECD scale) sets the following weights: 1 CU for the first adult household member; 0.5 CU for the other members aged 14+; 0.3 CU for children under 14.

Pour en savoir plus

Jérôme Accardo, Vanessa Bellamy, Georges Consalès, Maryse Fesseau, Sylvie Le Laidier, and Émilie Raynaud, “Inequalities between households in the national accounts: breakdown of household accounts”, The French economy 2009 - Accounts and studies , INSEE, June 2009.

Élise Amar, Magali Beffy, François Marical, and Émilie Raynaud, “Les services publics de santé, éducation et logement contribuent deux fois plus que les transferts monétaires à la réduction des inégalités de niveau de vie”, France, portrait social, INSEE Références series, 2008 edition.

“National accounts - Public finances” -> “Income, purchasing power and household consumption” -> “Income, consumption and saving by household category in 2003” sub-section on the website.