Guaranteed Minimum Income Schemes in Europe: Landscape and Design

IMF Working Papers, July 2, 2021

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Provides an overview of the design of means-tested Guaranteed Minimum Income (GMI) schemes in European countries.
Focuses on how key design features differ across countries and how countries balance:
- The primary objective of poverty alleviation.
- Managing work disincentives inherent in such programs.
- Containing fiscal cost.

Analysis finds a clear trade-off between poverty alleviation and employment incentives in practice.
Many countries combine low generosity with low benefit withdrawal rates (BWRs), thereby prioritizing employment incentives over 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 to lessen work disincentives.
Work disincentives associated with higher BWRs can be attenuated by strengthening complementary activation policies.

Consider allowing income disregards to reduce effective BWRs and improve work incentives.
Consider time dependent (rather than income-dependent) benefit withdrawal to reduce work disincentives.
Strengthen complementary activation policies that incentivize and support participation in the labor market.
Combine higher benefit generosity with appropriate BWRs and activation measures to reduce the trade-off between poverty alleviation and employment incentives.

Subjects: 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