Evaluating the performance of means-tested benefits in

Bulgaria

Policy analysis for 2007 using

Iva V. Tasseva

EUROMOD

EUROMODupdate Project Meeting, Riga, 13th of October 2011

� How well do the means-tested benefits

perform in terms of targeting in 2007?

Research questions

� How well do they perform in terms of

reducing poverty figures?

� No national micro simulation model in Bulgaria –

first steps towards this goal – the tax-benefit micro

simulation model EUROMOD

Research on the social assistance done only by the

Motivation

� Research on the social assistance done only by the

World Bank

� One of the main messages of the existing research on

social assistance (SA): excellent targeting, among the best

globally

� Guaranteed minimum income (gmi), heating

and means-tested child benefits

�Goal of gmi: lift out people above a certain

income limit – unclear how this is defined, no

Means-tested benefits in Bulgaria 1

income limit – unclear how this is defined, no

indexation

�Goal of heating benefit: provide income security

in winter season

�Goal of means-tested child benefits: provide

income security

� What does “provision of income security” means? – vague and unclear

Means-tested benefits in Bulgaria 2

� Intended to cover all vulnerable

� 74% of the budget for social assistance

� 60% of the median using SILC = 197.5 BGN (99 EUR)

Poverty line

BGN (99 EUR)

How well do the systems perform in terms of

targeting?targeting?

� Gmi and heating benefits – progressive benefits

� In contrast: Child benefit for young children and

Targeting (I)

� In contrast: Child benefit for young children and child benefits for older children – more regressive

Source: Author’s calculations using EUROMOD based on SILC

50%

60%

70%

80%

90%

100%

Cu

mu

lati

ve

dis

trib

uti

on

of

the

gm

i b

en

efi

t

Distribution of the budget over the deciles of the

income distribution

Equality line

gmi benefit

Poverty line~99 EUR

0%

10%

20%

30%

40%

50%

10% 20% 30% 40% 50% 60% 70% 80% 90%

Cu

mu

lati

ve

dis

trib

uti

on

of

the

gm

i b

en

efi

t

Cumulative income distribution of population in %

Heating benefit

Benefit for young

children

Benefit for older

children

60%

70%

80%

90%

100%

Cu

mu

lati

ve

dis

trib

uti

on

of

the

gm

i re

cip

ien

ts

Distribution of the beneficiaries over the deciles of

the income distribution

Equality line

gmi benefit

Poverty line~99 EUR

0%

10%

20%

30%

40%

50%

60%

10% 20% 30% 40% 50% 60% 70% 80% 90%

Cu

mu

lati

ve

dis

trib

uti

on

of

the

gm

i re

cip

ien

ts

Cumulative income distribution of population in %

gmi benefit

Heating benefit

Benefit for young

children

Benefit for older

children

Targeting (2) – However, ...

75%

95%

72%

31%

67%77%

55%

33%

94% 95%

78%88%

29%

82%78%

95%

10%20%30%40%50%60%70%80%90%

100%

Exclusion and inclusion error rates

poor

recipientsnonpoor

n

n −,

recipients

recipientspoornon

n

n ,−

recipients

recipientseligiblenon

n

n ,−

Source: Author’s calculations using EUROMOD based on SILCNote: the analysis is done at the tax unit level.

eligible

recipientsnoneligible

n

n −,

0%10%

Exclusion error de jure Exclusion error de facto Inclusion error de jure Inclusion error de facto

gmi benefit heating benefit Benefit for young children Benefit for older children

How well do the programmes perform in terms

of reducing poverty in 2007?of reducing poverty in 2007?

40%

50%

60%

70%

80%

Means-tested benefits as a percentage of per capita

disposable income (conditional on receipt)gmi benefit

Heating benefit

Benefit for young

children

0%

10%

20%

30%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cumulative income distribution of population in %

Benefit for older

children

Effectiveness I

2.69%5.58%

19.00%

17.69%1S: Equivalised disposable income

after social transfers 2007

Impact of the means-tested benefits on poverty rates

(poverty line equal to 60% of the median using SILC)

Head count

ratio

Poverty gap

Source: Author’s calculations using EUROMOD based on SILCNote: the analysis is done at the individual level.

2.10%

3.68%

4.93%

6.67%

17.92%

19.00%

0% 5% 10% 15% 20%

3S: Equivalised disposable income

after simulated social transfers 2007

(100% take up rate, 0% leakage)

2S: Equivalised disposable income

before social transfers 2007

Poverty gap

Poverty

severity

� All benefits – pensions: Impact on poverty is 3.5 pp (9.3 pp in EU15, 8.7 pp in EU12)

� All benefits + pensions: Impact on poverty

Effectiveness II

� All benefits + pensions: Impact on poverty is 19.4 pp (25.8 pp in EU15, 26.7 pp in EU12)

� Among the lowest in terms of poverty alleviation

Source: Eurostat

� Aggregated amount and recipients

� Except for the non-contributory child benefit for young

children: means-tested benefits are underreported in SILC

� However, my means-tested simulated benefits show

also smaller aggregates when compared to external

Limitations I

also smaller aggregates when compared to external

statistics

� Gmi – very progressive benefit – most claimants are the

poorest (75% are Roma*) and this group of the population

might be not well presented in the survey

•Source: World Bank: “Bulgaria. Social Assistance Programs: Cost, Coverage, Targeting and Poverty Impact” September, 2009

� Income-test – based on previous monthly income

� My calculations – assume that people

Limitations II

� My calculations – assume that people apply in December 2006 – deflate income from 2007 to 2006

� Gmi and heating benefits go mainly to the poorest

two deciles of the population, child benefits perform

very poorly – the numbers of exclusion and inclusion

errors are alarming – not well targeted

Conclusions

� Important as an income source for the poorest 1st

and 2nd deciles

� Significant decrease in poverty gap and severity –

effective in decreasing poverty intensity

� But low impact on head count ratio by 1.3 pp – not

effective in decreasing poverty incidence

� Redefine objectives!

� Improve targeting!

Need for reform

� Improve targeting!

� Not feasible – increase benefit levels

Thank you for your attention!

Do you have any questions?

� Barr, N. (1993): Economics of the Welfare State. Chapter 6 and 10.

� Eurostat: http://epp.eurostat.ec.europa.eu� Samson, M. (2009): Micro-simulation for ex-ante policy

Sources

� Samson, M. (2009): Micro-simulation for ex-ante policy analysis. Maastricht University . Lecture presented during the course on Public Policy Analysis

� World Bank: “Bulgaria. Social Assistance Programs: Cost, Coverage, Targeting and Poverty Impact” September, 2009