An Asset-based Indicator of Wellbeing for a Unified Means Testing Tool: Money Metric or Counting Approach?

As part of the Europe 2020 strategy, European member states have committed to modernizing and harmonizing their welfare systems and to improving the quality of the means testing tools adopted to correctly identify the beneficiaries of welfare policies. This study contributes to the literature on means testing by implementing and then comparing two alternative multidimensional targeting approaches: an asset-based money metric and a counting measurement of poverty. The two approaches aggregate poverty dimensions and differently implement inter-household comparisons of wellbeing. The study shows that in terms of targeting efficiency the approach based on the money metric is superior. The comparison is important from both an empirical and a policy point of view because a unified means testing tool would pave the way to harmonized welfare policies across European countries.