Association for Public Policy Analysis & Management

In this paper we aim to provide evidence of the relative effectiveness of different types of policy instrument in reducing risk of poverty (or limiting its increase) 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 focus on the scale of the instrument rather than its design and our aim is to compare the effectiveness for poverty risk reduction of scaling existing instruments up or down across the full range of possible changes, not to design realistic or politically feasible policy reform scenarios. Thus this paper should be seen as providing evidence of the effectiveness of the “building blocks” of policy making, drawing on analysis of seven national policy systems and contexts.

In each case we take the existing policy instrument and calculate the direct effects on household income of inflating (and deflating) the relevant thresholds and payment levels by common proportions (5%, 20% and 90%). To do this we make use of EUROMOD, the tax-benefit microsimulation model for the European Union, based on micro-data from the European Union Statistics on Income and Living Conditions (EU-SILC). The effect on poverty is calculated and compared across instruments, countries and the size and direction of the change is assessed in terms of the change in poverty relative to the budgetary effect of the policy change.

We consider four types of policy instrument that potentially have a direct effect on household income and hence on the risk of income poverty: child benefits, minimum income components of social assistance, income tax lower thresholds and minimum wages; and one more general aspect of policy-making: the regular indexation of benefit levels and tax thresholds.