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Improving poverty reduction in Europe: what works (best) where?

Author

Listed:
  • Chrysa Leventi
  • Holly Sutherland
  • Iva Valentinova Tasseva

Abstract

In this paper we provide evidence of the relative cost-effectiveness of different types of policy instrument in reducing the risk of poverty (or limiting its increase). We do that by measuring the implications of increasing or reducing the size of the instrument within its national context, comparing across 7 diverse EU countries: Belgium, Bulgaria, Estonia, Greece, Hungary, Italy and the UK. We consider four types of commonly-applied policy instrument that have a direct effect on household income and hence potentially on the risk of income poverty: child benefits, minimum income components of social assistance, income tax lower thresholds and minimum wages; and one general aspect of policymaking, the regular indexation of benefit levels and tax thresholds. We focus on changing the scale of the instrument rather than its structure. Hence, in each case we take the existing policy instrument and calculate the direct effects on household income of inflating/deflating the relevant thresholds and payment levels by common proportions (5%, 20% and 90%), taking account of interactions with the rest of the tax-benefit system. To do this we make use of EUROMOD, the taxbenefit microsimulation model for the European Union, based on microdata from the European Union Statistics on Income and Living Conditions (EU-SILC). The effect on income poverty (FGT0 and FGT1) is calculated and compared across instruments and countries and is assessed relative to the budgetary effect of the policy change. The aim of this paper is not necessarily to present realistic or politically feasible policy reform scenarios but rather to compare the cost-effectiveness of some common “building blocks” of policy making, drawing on analysis of seven national policy systems and contexts.

Suggested Citation

  • Chrysa Leventi & Holly Sutherland & Iva Valentinova Tasseva, 2016. "Improving poverty reduction in Europe: what works (best) where?," ImPRovE Working Papers 16/16, Herman Deleeck Centre for Social Policy, University of Antwerp.
  • Handle: RePEc:hdl:improv:1616
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    References listed on IDEAS

    as
    1. Holly Sutherland & Ruth Hancock & John Hills & Francesca Zantomio, 2008. "Keeping up or Falling behind? The Impact of Benefit and Tax Uprating on Incomes and Poverty," Fiscal Studies, Institute for Fiscal Studies, vol. 29(4), pages 467-498, December.
    2. Avram, Silvia & Figari, Francesco & Leventi, Chrysa & Levy, Horacio & Navicke, Jekaterina & Matsaganis, Manos & Militaru, Eva & Paulus, Alari & Rastrigina, Olga & Sutherland, Holly, 2013. "The distributional effects of fiscal consolidation in nine EU countries," EUROMOD Working Papers EM2/13, EUROMOD at the Institute for Social and Economic Research.
    3. Natascha Van Mechelen & Sarah Marchal, 2013. "Trends and convergence of Europe’s minimum income schemes," ImPRovE Working Papers 13/11, Herman Deleeck Centre for Social Policy, University of Antwerp.
    4. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    5. Paola De Agostini & John Hills & Holly Sutherland, 2015. "Were we really all in it together? The distributional effects of the 2010-2015 UK Coalition government's tax-benefit policy changes: an end-of-term update," CASE - Social Policy in a Cold Climate Working Paper 22, Centre for Analysis of Social Exclusion, LSE.
    6. Francesco Figari & Carlo V. Fiorio, 2015. "Fiscal Consolidation Policies in the Context of Italy's Two Recessions," Fiscal Studies, Institute for Fiscal Studies, vol. 36, pages 499-526, December.
    7. Immervoll, Herwig & Pearson, Mark, 2009. "A Good Time for Making Work Pay? Taking Stock of In-Work Benefits and Related Measures across the OECD," IZA Policy Papers 3, Institute for the Study of Labor (IZA).
    8. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
    9. Immervoll, Herwig, 2009. "Minimum-Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges," IZA Discussion Papers 4627, Institute for the Study of Labor (IZA).
    10. Ravagli, Letizia, 2015. "A minimum income in Italy," EUROMOD Working Papers EM16/15, EUROMOD at the Institute for Social and Economic Research.
    11. Marchal, Sarah & Marx, Ive, 2015. "Stemming the Tide: What Have EU Countries Done to Support Low-Wage Workers in an Era of Downward Wage Pressures?," IZA Discussion Papers 9390, Institute for the Study of Labor (IZA).
    12. Diego Collado & Bea Cantillon & Karel Van den Bosch & Tim Goedemé & Dieter Vandelannoote, 2016. "The end of cheap talk about poverty reduction: the cost of closing the poverty gap while maintaining work incentives," ImPRovE Working Papers 16/08, Herman Deleeck Centre for Social Policy, University of Antwerp.
    13. David Neumark & William Wascher, 2002. "Do Minimum Wages Fight Poverty?," Economic Inquiry, Western Economic Association International, vol. 40(3), pages 315-333, July.
    14. Tasseva, Iva Valentinova, 2016. "Evaluating the performance of means-tested benefits in Bulgaria," Journal of Comparative Economics, Elsevier, vol. 44(4), pages 919-935.
    15. Lane Kenworthy, 1998. "Do Social-Welfare Policies Reduce Poverty? A Cross-National Assessment," LIS Working papers 188, LIS Cross-National Data Center in Luxembourg.
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    More about this item

    Keywords

    Poverty; Europe 2020; EU; social policy; fiscal policy; microsimulation;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D30 - Microeconomics - - Distribution - - - General
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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