Redistributive effects of the Swedish social insurance system

Four principles are used to distribute payments via the Swedish social-insurance system in cases of temporary or permanent illness and death. This paper studies the redistributive effects on income of these four principles.

The analysis is based on aggregate social-insurance data from the 25 municipalities that comprise Stockholm County in Sweden. For nine different types of social-insurance payments based on the four principles, the degree of income redistribution is measured according to concentration indexes and differences between Gini coefficients with social-insurance payments excluded and included.

The concentration indexes for payments from the nine social-insurance schemes in total is -0.0469. The Gini coefficient falls from 0.0437 excluding insurance payments (i.e. for income only from gainful work, IGW) to 0.0379 when including insurance payments with income from gainful work (IGW + TP). That is, the Gini coefficient is 15% lower when insurance payments are included. Decomposition by payment shows that the largest redistribution effect on income inequality is made by disability pension.

Municipalities with low average income are favoured by the Swedish social-insurance system. Payment principles can be ranked according to their redistributive capacity: mix of compensating-lost-income and flat-rate, compensating-lost-income, means-testing, flat-rate, and need-based respectively. The nine social-insurance schemes contribute very differently to income redistribution. Disability pension and sickness allowance contribute most to income redistribution and reducing income inequality.