OECD Economics Department Working Papers

ISSN: 
1815-1973 (online)
http://dx.doi.org/10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

The effects of reform scenarios for unemployment benefits and social assistance on financial incentives to work and poverty in Lithuania You or your institution have access to this content

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Author(s):
Jekaterina Navicke1, Silvia Avram2, Lilas Demmou3
Author Affiliations
  • 1: Vilnius University, Lithuania

  • 2: University of Essex, United Kingdom

  • 3: OECD, France

26 July 2016
Bibliographic information
No.:
1310
Pages:
45
http://dx.doi.org/10.1787/5jlv2jmtmsmr-en

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In 2015 the Lithuanian government launched an ambitious Social Model reform agenda aimed at balancing flexibility of the labour market and security provided through the system of social protection. We simulate alternative scenarios for reforming the unemployment benefit and cash social assistance systems in Lithuania. We first analyse a reform of the social insurance unemployment benefit along the lines currently proposed by the Lithuanian authorities within the new “Social Model”. The social assistance reforms were left outside of the Social Model. However, social assistance, as currently designed, has strong negative effects on the work incentives of the recipients. We construct and consider several reform scenarios: extending the current system of in-work payments; establishing earnings disregards; and modifying the equivalence scale for family. We look at the effects of reforms on financial incentives to search and accept a vacancy as measured by the share of additional income that is taxed away through direct taxes, social insurance contributions or through benefit withdrawal when increasing labour supply (effective marginal tax rate). We also investigate the impact of reforms on poverty, income distribution as well as their first-order financial costs. We use microsimulation techniques applied to a representative sample of Lithuanian households. Our simulations are carried out using EUROMOD –a static tax-benefit microsimulation model developed for the European Union. The model uses micro-data from the 2012 Lithuanian component of the European Union-Survey of Income and Living Conditions (SILC). This Working Paper relates to the 2016 OECD Economic Survey of Lithuania (www.oecd.org/eco/surveys/economic-survey-lithuania.htm).
Keywords:
effective tax rate, social assistance benefits, in-work benefits, simulations, unemployment benefits
JEL Classification:
  • D04: Microeconomics / General / Microeconomic Policy: Formulation, Implementation, and Evaluation
  • D3: Microeconomics / Distribution
  • I3: Health, Education, and Welfare / Welfare, Well-Being, and Poverty
  • J2: Labor and Demographic Economics / Demand and Supply of Labor
  • J6: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers
 
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