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The activation dilemmaReconciling the fairness and effectiveness of minimum income schemes in Europe$

Amilcar Moreira

Print publication date: 2008

Print ISBN-13: 9781847420466

Published to Policy Press Scholarship Online: March 2012

DOI: 10.1332/policypress/9781847420466.001.0001

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(p.126) (p.127) Appendix A Methodology for benefit comparison

(p.126) (p.127) Appendix A Methodology for benefit comparison

Source:
The activation dilemma
Publisher:
Policy Press

Chapter Five uses the minimum income recipients’ ‘total household net disposable income’ as a percentage of the poverty line as an indicator of the degree to which minimum income schemes provide a level of income that allows recipients to participate fully in society. The objective here is to clarify the methodology used to calculate this indicator.

Following relevant literature on the topic (see Eardley et al, 1996a, p 110), it was decided to compare the disposable income of four different households: a household headed by a single person; a household headed by a single parent; a couple without children; and a couple with children. Bearing in mind that these are not traditionally relevant in the population of social assistance beneficiaries, it was decided not to include a large household in this study (Kuivalainen, 2003, p 133).

In order to improve the reliability of the analysis, it was decided to introduce a number of restrictions in these family models. For instance, in order to exclude young adults who, in some countries, have lower benefit rates; and older beneficiaries, who might be entitled to non-contributory social pensions, the study compared adults aged 40. Also, in order to capture the impact of differentiated benefit rates of family allowances in the households’ disposable income, it was decided to focus on children of pre-school age (3) and of school age (7). Considering the previous criteria, this comparative study focuses on four household types:

  • single person, aged 40

  • lone parent with two children (first child to be 7 and the second child 3 years old)

  • couple (both aged 40) without children

  • couple (both aged 40) with two children (first child to be 7 and the second child 3 years old)

The value of the poverty line was set at 60% of the median equivalised income (Eurostat, 2003b, p 3). In order to calculate the value of the poverty line for the different households, it was decided to use the ‘modified’ OECD (Organisation for Economic Co-operation and Development) equivalence scale, which gives a weight of 1.0 to the first adult, 0.5 to any other household member aged 14 and over, and 0.3 to each child (Eurostat, 2003b, p 1).

(p.128)

Table A.1: Poverty line for a single person

Poverty line

BSHG97

1,410.20

BSHG99

1,437.75

SB97

6,726.13

SB98

7,063.78

ABW97

1,326.00

ABW99

1,418.62

RMI98

4,482.24

RMG98

56,364.88

SWA98

403.74

TTK97

3,734.60

TTK99

4,037.70

JSA97

446.03

JSA99

467.30

Source: ECHP

The calculation of the ‘total household net disposable income’ is based on a ‘worst case scenario’ assumption. Hence, recipients are assumed to have no income from work, unemployment benefits, earnings or capital. Therefore, the total household net disposable family income is the product of the value of the minimum income benefit and of any family allowance (where applicable), minus the share of taxes (where applicable).

As can be seen, there are two limitations to this definition of ‘total household net disposable income’. First, it does not include the housing costs recipients might incur, or the housing benefits they might be entitled to. Accepting that this can cause some bias in the analysis, namely for countries such as the UK where housing benefit makes a significant part of the income of minimum income recipients, there are important reasons to justify this. First of all, there is a significant level of complexity in the measurement of housing costs, as they vary significantly with the structure of the household, the age and the location of dwellings (Kuivalainen, 2003, p 133). In the same way, there are significant variations in how different schemes cover housing costs (Eardley et al, 1996a, pp 67–71; Guibentif and Bouget, 1997, pp 29–31).

Second, despite some of the family models used in this comparison that include children in pre-school age, this notion of ‘total household net disposable family income’ does not include the costs families incur with childcare. This is due to the fact that, given the high percentage of private and informal provision, and the high level of local discretion, there is not enough comparative information available on this topic (see Bradshaw and Finch, 2002, p 80). (p.129)

Table A.2: Disposable income as a percentage of the poverty line for a single person (aged 40)

Social assistance benefit (A)

Housing benefitsa (B)

Family allowances (C)

Amount before taxes (D=(A+ B+C))

Taxationb c (E)

Amount deductedb (F=(E*D))

TNDFId (G=(D-F))

Poverty line (H)

TN DF1/ Poverty line (G/H)

BSHG97

538.00

0.00

0.00

538.00

0.00

0.00

538.00

1,410.20

0.38

BSHG9

0.00

0.00

546.00

0.00

0.00

546.00

1,437.75

0.38

S B97

6,825.00

0.00

0.00

6,825.00

25.00

1,706.25

5,118.75

6,726.13

0.76

S B9

7,104.00

0.00

0.00

7,104.00

25.00

1,776.00

5,328.00

7,063.78

0.75

ABW9

1,314.91

0.00

0.00

1,314.91

0.00

0.00

1,314.91

1,326.00

0.99

ABW9

1,399.50

0.00

0.00

1,399.50

0.00

0.00

1,399.50

1,418.62

0.99

RM198

2,429.42

0.00

0.00

2,429.42

0.00

0.00

2,429.42

4,482.24

0.54

RMG9

22,100.00

0.00

0.00

22,100.00

0.00

0.00

22,100.00

56,364.88

0.39

SWA98

283.40

0.00

0.00

283.40

0.00

0.00

283.40

403.74

0.70

TTK9

2,021.00

0.00

0.00

2,021.00

0.00

0.00

2,021.00

3,734.60

0.54

TTK99

2,047.00

0.00

0.00

2,047.00

0.00

0.00

2,047.00

4,037.70

0.51

JSA9

229.37

0.00

0.00

229.37

0.00

0.00

229.37

446.03

0.51

JSA99

239.87

0.00

0.00

239.87

0.00

0.00

239.87

467.30

0.51

Notes: (a) Where available.

(b) Percentage.

(1) Where appropriate.

(2) Total net disposable family income.

Source: Commission of the European Communities (1998b, 1999, 2000)

(p.130)

Table A.3: Disposable income as a percentage of the poverty line for a lone parent (aged 40), with 2 children (aged 7 and 3)

Social assistance benefit (A)

Housing benefitsa (B)

Family allowances (C)

Amount before taxes (D= (A+ B+C))

Taxationb, c (E)

Amount deductedb (F=(E*D))

TN DFId (G=(D-F))

Poverty line (H)

TN DF1/Poverty line (G/H)

BSHG9

1,183.60

0.00

220.0CM

1,403.60

0.00

0.00

1,403.60

2,256.32

0.62

BSHG9

1,201.20

0.00

250.00

1,451.20

0.00

0.00

1,451.20

2,300.40

0.63

S B97

9,100.00

0.00

1,400.00

10,500.00

0.20

2,100.00

8,400.00

10,761.81

0.78

S B9

9,472.00

0.00

1,525.00

10,997.00

0.00

0.00

10,997.00

11,302.05

0.97

ABW97

1,690.58

0.00

727.36

2,417.94

0.00

0.00

2,417.94

2,121.60

1.14

ABW9

1,799.33

0.00

727.36

2,526.69

0.00

0.00

2,526.69

2,269.79

1.11

RM198

4,399.97

0.00

682.00

5,081.97

0.00

0.00

5,081.97

7,171.58

0.71

RMG9

42,200.00

0.00

8,400.00

50,600.00

0.00

0.00

50,600.00

90,183.81

0.56

SWA98

397.80

0.00

60.00

457.80

0.00

0.00

457.80

645.98

0.71

TTK9

4,689.00

0.00

0.00

4,689.00

0.00

0.00

4,689.00

5,975.36

0.78

TTK99

4,524.26

0.00

0.00

4,524.26

0.00

0.00

4,524.26

6,460.32

0.70

J5A9

460.83

0.00

0.00

460.83

0.00

0.00

460.83

713.64

0.65

J5A99

545.77

0.00

0.00

545.77

0.00

0.00

545.77

747.68

0.73

Notes: (a) Where available.

(b) Percentage.

(1) Where appropriate.

(2) Total net disposable family income.

Source: Commission of the European Communities (1998b, 1999, 2000)

(p.131)

Table A.4: Disposable income as a percentage of the poverty line for a couple (both aged 40), with no children

Social assistance benefit (A)

Housing benefitsa (B)

Family allowances (C)

Amount before taxes (D=(A+B+C))

Taxationb,c (E)

Amount deductedb (F=(E*D))

TNDFId (G=(D-F))

Poverty line (H)

TNDFI/Poverty line (G/H)

BSHG9

968.40

0.00

0.00

968.40

0.00

0.00

968.40

2,115.30

0.46

BSHG9

982.80

0.00

0.00

982.80

0.00

0.00

982.80

2,156.63

0.46

SB97

13,650.00

0.00

0.00

13,650.00

0.32

4,368.00

9,282.00

10,089.20

0.92

SB9

14,208.00

0.00

0.00

14,208.00

0.32

4,546.56

9,661.44

10,595.67

0.91

ABW97

1,878.50

0.00

0.00

1,878.50

0.00

0.00

1,878.50

1,989.00

0.94

ABW9

1,999.25

0.00

0.00

1,999.25

0.00

0.00

1,999.25

2,127.93

0.94

RM198

3,671.14

0.00

0.00

3,671.14

0.00

0.00

3,671.14

6,723.36

0.55

RMG9

42,200.00

0.00

0.00

42,200.00

0.00

0.00

42,200.00

84,547.33

0.50

SWA98

456.73

0.00

0.00

456.73

0.00

0.00

456.73

605.61

0.75

TTK9

3,436.00

0.00

0.00

3,436.00

0.00

0.00

3,436.00

5,601.90

0.61

TTK99

3,480.00

0.00

0.00

3,480.00

0.00

0.00

3,480.00

6,056.55

0.57

JSA9

360.03

0.00

0.00

360.03

0.00

0.00

360.03

669.04

0.54

JSA99

376.37

0.00

0.00

376.37

0.00

0.00

376.37

700.95

0.54

Notes: (a) Where available.

(b) Percentage.

(c) Where appropriate.

(d) Total net disposable family income.

Source: Commission of the European Communities (1998b, 1999, 2000)

(p.132)

Table A.5: Disposable income as a percentage of the poverty line for a couple (both aged 40), with two children, aged 7 and 3

Social assistance benefit (A)

Housing benefitsa (B)

Family allowances (C)

Amount before taxes (D=(A+B+C))

Taxationb,c (E)

Amount deductedb (F=(E*D))

TNDFId (G=(D-F))

Poverty line (H)

TNDFI/Poverty line (GIH)

BSHG97

1,587.10

0.00

220.00

1,807.10

0.00

0.00

1,807.10

2,961.42

0.61

BSHG9

1,610.70

0.00

250.00

1,860.70

0.00

0.00

1,860.70

3,019.28

0.62

SB97

18,200.00

0.00

1,400.00

19,600.00

0.33

6,468.00

13,132.00

14,124.87

0.93

SB98

18,944.00

0.00

1,525.00

20,469.00

0.33

6,754.77

13,714.23

14,833.94

0.92

ABW97

1,878.50

0.00

727.36

2,605.86

0.00

0.00

2,605.86

2,784.60

0.94

ABW9

1,999.25

0.00

727.36

2,726.61

0.00

0.00

2,726.61

2,979.10

0.92

RM198

5,128.80

0.00

682.00

5,810.80

0.00

0.00

5,810.80

9,412.70

0.62

RMG9

66,300.00

0.00

8,400.00

74,700.00

0.00

0.00

74,700.00

118,366.26

0.63

SWA98

571.13

0.00

60.00

631.13

0.00

0.00

631.13

847.85

0.74

TTK97

6,104.00

0.00

0.00

6,104.00

0.00

0.00

6,104.00

7,842.66

0.78

TTK99

5,957.26

0.00

0.00

5,957.26

0.00

0.00

5,957.26

8,479.17

0.70

JSA97

568.17

0.00

0.00

568.17

0.00

0.00

568.17

936.65

0.61

JSA99

557.43

0.00

0.00

557.43

0.00

0.00

557.43

981.33

0.57

Notes: (a) Where available.

(b) Percentage.

(c) Where appropriate.

(d) Total net disposable family income.

Source: Commission of the European Communities (1998b, 1999, 2000)