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Mr. David Coady, Samir Jahan, Baoping Shang, and Riki Matsumoto
This paper provides an overview of the design of means-tested Guaranteed Minimum Income schemes, which constitute an important component of social protection systems in European countries. It discusses how key design features differ across countries, including how countries balance the primary objective of poverty alleviation against the desire to both manage the work disincentives inherent in such programs and contain fiscal cost. The analysis finds a clear trade-off between both concerns in practice, with many countries combining low generosity with low benefit withdrawal rates (BWRs) thus prioritizing employment incentives over the primary objective of 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, including through allowing income disregards and time dependent (rather than income-dependent) benefit withdrawal. The work disincentives associated with higher BWRs can also be attenuated through strengthening complementary activation policies that incentivize and support participation in the labor market.
Mr. David Coady, Samir Jahan, Baoping Shang, and Riki Matsumoto

Means-tested Income Support Spending in European Countries, 1990–2018 4. Distribution of PTRs and METRs Across Countries by Household Type, 2019 5. Relationship Between Generosity and PTRs, 2019 6. Relationship Between Generosity and METRs, 2019 Table 1. Variation in Key GMI Design Features in European Countries Annexes 1. Estimation of PTRs and METRs 2. PTRs and MTRs in European GMI Schemes by Household Type 3. Activation Policies 4. Reform Experiences in the U.K. and Germany Annex Figures A1.1 Comparison of PTR and METR Estimates, 2017 A2

Mr. David Coady, Samir Jahan, Baoping Shang, and Riki Matsumoto

categorical, such as universal child benefits, or means tested, and aim to protect households from poverty or compensate for higher expenditures (e.g., child benefits). At the center of means-tested benefits are Guaranteed Minimum Income (GMI) schemes, which play the role of last-resort income support programs aimed at protecting working-age households from poverty. Such schemes become increasingly important in the context of economic shocks and have played an important role in in protecting households from the economic consequences of lockdowns in the context of the

International Monetary Fund. European Dept.

participation tax or the price effect) could strongly disincentivize work and discourage labor force participation. To strengthen incentives, successful GMI schemes in practice incorporate conditional in-work tax credits (including for secondary earners) as well as a variety of “out of work” benefits, such as (marginal) income disregard for part-time and casual work, gradual benefit phase-outs, and back-to-work bonuses. REI, however, has a high withdrawal rate (though below 100 percent). If RC has a top-up benefit formula that, absent other tools, also creates a high

International Monetary Fund. European Dept.
This Selected Issues paper uses the tax-benefit microsimulation model for the European Union (EUROMOD) to evaluate possible reforms to modernize Italy’s social safety net as well as ways to lower the tax wedge on labor. With a social safety net centered on pensions and the elderly and an array of income support schemes as well as a heavy tax burden falling on labor income, there is significant scope to improve Italy’s system of taxes and transfers to promote growth and inclusion. The paper also simulates the cost of a modern safety net using EUROMOD. The paper also provides an overview of Italy’s personal income tax regime, simulates the cost of moving toward a flatter regime that has previously been proposed by the government coalition and discusses some key reform principles. It is concluded that Italy needs a modern social safety net and a lower tax wedge on labor as part of a growth-friendly and inclusive fiscal consolidation package.
International Monetary Fund. European Dept.

. Digitization reform has greatly facilitated regular eligibility checkups across different platforms and administrative agencies, but further data integration and automation is needed. In this regard, the authorities aim to establish a single payment platform for all social benefits by 2024. Table 1. Greece: Recent Reforms of Social Programs Time Reform Initiatives Feb-2017 Social Solidarity Income (SSI or GMI) scheme Mid-2017 Establishment and operation of community centers in most municipalities as one-stop-shop for all social

International Monetary Fund. European Dept.

electricity and gas consumption should be phased out and replaced with targeted support for vulnerable groups and viable firms while allowing a gradual pass-through of higher prices to consumers. Staff encouraged the authorities to identify and address gaps in the mean-tested Guaranteed Minimum Income (GMI) scheme and raise its benefit levels at least in line with inflation to make it the “go-to” safety net during adverse shocks. 7 Aiming for a gradual, growth-friendly, but credible fiscal adjustment over the medium term. Staff’s baseline projects the primary balance to

International Monetary Fund. European Dept.
Greece has weathered the pandemic well, with a considerably stronger-than-expected recovery. Reforms progressed in several areas, including digitalization, privatization, improving the fiscal policy mix, and bank balance sheet repair. Greece finalized its early repayment to the IMF on April 4 and is expected to graduate from the quarterly European Institutions’ Enhanced Surveillance framework on schedule by August 2022. Despite the adverse impact of the war in Ukraine, growth is projected to remain robust at 3.5 percent this year. High energy prices are expected to push up average inflation to 6.1 percent. Public debt is on a downward trajectory and rollover risks appear manageable. The external position last year was moderately weaker than that consistent with fundamentals and desirable policies.
International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department

. Many of the social spending reform measures were included in the 2013 budget and published in a medium-term framework to signal a clear commitment to fiscal consolidation, which had been elusive in the years preceding the crisis. The authorities’ consolidation plans were supported by structural benchmarks (SBs) for social protection reforms, including introducing a guaranteed minimum income (GMI) scheme capable of protecting those adversely affected by the crisis, including the working poor. 41. Timely technical assistance (TA) with World Bank participation

International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department
This paper uses case studies to explore the nature and extent of past IMF engagement on social spending issues and to draw lessons for future engagement.