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The pro-poor impact of an in-work benefit on low income earners in Spain

The pro-poor impact of an in-work benefit on low income earners in Spain. European Meeting of the International Microsimulation Association, Dublin, May 17-19 2012. María Milagros Paniagua Luis Ayala. Introduction In- work benefits Definition Previous experiences Methodology Model Data

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The pro-poor impact of an in-work benefit on low income earners in Spain

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  1. The pro-poor impact of an in-work benefit on low income earners in Spain European Meeting of the International Microsimulation Association, Dublin, May 17-19 2012 María Milagros Paniagua Luis Ayala

  2. Introduction • In-workbenefits • Definition • Previousexperiences • Methodology • Model • Data • Simulation • Measurement • Conclusions

  3. Introduction • Spain is one of the European countries with a higher proportion of low-income workers Source: Statistics database on line. Earnings (labour market) http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database

  4. Introduction • Trade-off between out-of-work and IN-WORK support • Can in-work benefits help the Spanish low income earners be better off?

  5. In-work benefits • Definition • Employment conditional benefits • Dependent children also considered • Aim at low income families – low wage earners • Target: increase labour supply and redistribute income towards low income families (poverty reduction) • Different ways of designing IWBs – depending on the target group

  6. In-work benefits • Definition • According to Saez (2002) the optimal IWB has the following form:

  7. In-work benefits • Previous experiences • Long tradition in Anglo-saxon countries • Other OECD countries start to implement IWB • Spain has little history regarding IWBs and we want to apply the experience of US and UK • Implementation of an IWB similar to the EITC in terms of design and for same individuals as the Spanish working mother tax credit (child age requirements enlarge to 16 years of age)

  8. Methodology: model and data • EUROMOD v4.26 as the microsimulation tool to calculate disposable income, before and after the new in-work benefit. • Data from EU_SILC 2006 (income from 2005)

  9. Methodology: simulation • New biw_s calculated for parents (female or male without partner) with children under 16 with positive income from work (employee or self-employed) 150 100 150 400 450

  10. Methodology: results Not many changes in terms of poverty reduction. What if we analyse severe poverty?

  11. Methodology: results Better results

  12. Methodology: results

  13. Methodology: results

  14. Methodology: results

  15. Methodology: results

  16. Methodology: results

  17. Conclusions • The new benefit apparently doesn’t have high distributive effects BUT can be very progressive within the first income decile. • When benefits are means-tested, low-income families are the most favoured by the reform. • The cost of the program is 182 million euros – if severe poverty is alleviated it can be worthwhile. • Will this new IWB encourage low-income earners to work?

  18. Thank you for attending this session. Comments are welcome ! milagros.paniagua@ief.minhap.es

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