Guaranteed Minimum Income Schemes in Europe: Landscape and Design

By David Coady, Samir Jahan, Baoping Shang, Riki Matsumoto

July 2, 2021

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David Coady, Samir Jahan, Baoping Shang, and Riki Matsumoto. Guaranteed Minimum Income Schemes in Europe: Landscape and Design, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper provides an overview of the design of means-tested Guaranteed Minimum Income schemes, which constitute an important component of social protection systems in European countries. It discusses how key design features differ across countries, including how countries balance the primary objective of poverty alleviation against the desire to both manage the work disincentives inherent in such programs and contain fiscal cost. The analysis finds a clear trade-off between both concerns in practice, with many countries combining low generosity with low benefit withdrawal rates (BWRs) thus prioritizing employment incentives over the primary objective of poverty alleviation. Many countries can reduce this trade off by combining higher generosity with higher BWRs. Countries with very high BWRs should consider reducing these, including through allowing income disregards and time dependent (rather than income-dependent) benefit withdrawal. The work disincentives associated with higher BWRs can also be attenuated through strengthening complementary activation policies that incentivize and support participation in the labor market.

Subject: Employment, Income, Labor, Labor markets, National accounts, Tax allowances, Taxes, Wages

Keywords: Activation policy, Benefit generosity, Employment, Europe, GMI scheme, Guaranteed Minimum Income scheme, Income, Labor disincentive, Labor markets, Tax allowances, Wages, Work disincentive

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/179
Stock No:

WPIEA2021179
ISBN:

9781513584379
ISSN:

1018-5941

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