Ex-Ante Assessment of the Activation Component Insertion within the Guaranteed Minimum Income on the Incidence of Poverty in Romania

Abstract

The paper analyzes simultaneously two important aspects related to the adequacy of the guaranteed minimum income to reduce poverty among the vulnerable, as its main purpose and the adequacy to the size of activation among its beneficiaries to take up a job. Introducing a real pro-active element within the guaranteed minimum income, which will provide, besides the financial support for the poorest people, also a real activation of its beneficiaries, would be an important direction for improvement and modernization of this important social benefit. We also estimate that this new activation element included in the guaranteed minimum income could also have an impact on poverty reduction. The new insertion of this pro-active conditionality was simulated by swapping techniques, which allowed the introduction of this activation element within the guaranteed minimum income, meant to stimulate for work and also to reduce poverty. In this ex-ante evaluation exercise, we simulate the scenario with a 50% threshold applied to the work income (the new legislative conditionality with the 50% threshold will come into force next year); we analyze if the relative poverty will be reduced in this simulation exercise. For the ex-ante evaluation of the impact on the poverty incidence of this new activation incentive included in the guaranteed minimum income program, the classic simulation model was used. Thus, we focus concurrently on two essential aspects of this social benefit, namely poverty reduction, and increasing the social and occupational inclusion.