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Assessing the Benefits Reform in Slovenia Using a MicrosimulationApproachNataša KumpInstitute for Economic ResearchKardeljeva pl. 17, 1000 Ljubljananatasa.kump@ier.siTel: +386(0)15303824Boris MajcenInstitute for Economic ResearchKardeljeva pl. 17, 1000 Ljubljanamajcenb@ier.siTel: +386(0)15303824Mitja ČokFaculty of Economics, University of LjubljanaKardeljeva pl.17, 1000 Ljubljanamitja.cok@ef.uni-lj.siTel: +386(0)5892741ABSTRACT: Slovenia faced a wave of proposed structural reforms in 2005. Consequently, the doorto acquiring data at the individual level was finally opened and the database for a national tax benefitmicrosimulation model was built. This microsimulation model soon proved to be a useful analyticaltool for evaluating the consequences of particular policy measures in the area of social security. Anew regulation governing social transfers is supposed to be enacted in June 2011. A second versionof the Slovenian static microsimulation model has been constructed to assess the effects of thisongoing comprehensive reform. The model is based on a cross-sectional dataset representing apopulation of all ages at a certain point in time (the year 2007). The sample consists of 40,000households with approximately 115,000 individuals (approximately 6% of the population) and isbased on linked data taken from statistical and administrative sources. The paper describes the maincharacteristics of the current system of social benefits, reform changes and the structure of the modelwhich was used to identify the winners and losers as well as the distributional effects of the reform.1. INTRODUCTIONA significant part of Slovenia’s current social benefit system was formed at the start of 1990,including the new Social Assistance Act and Family Benefits Act. Since then, some changes havebeen introduced to social benefits. At first, the child benefit was just a kind of basic social protection(social assistance), while in 1998 the child benefit became less of a social assistance disbursementand more of a family policy benefit. In the period from 1993 to mid-2001, the guaranteed minimumincome (social assistance) in Slovenia was very low. The Social Assistance and Services Act wasamended in 2001 and higher benefit levels have gradually been introduced. Due to the high childbenefit level for children in families with the lowest income, the 2001 amendments to the SocialAssistance and Services Act set the minimum income for children at a low level (30% of theminimum income of the first adult in a family) (Stropnik and Stanovnik, 2002). Both benefits aredisbursed by the country’s centres for social work. The Social Assistance and Services Act alsoregulated subsidised rent until the Housing Act was adopted in 2003. Municipalities are responsible1


for rent subsidies.A new Scholarship Act introducing a new means threshold for entitlement to state scholarships wasadopted in 2007. The Act for the first time independently governs the scholarship scheme which hasbeen regulated by the Employment and Insurance Against Unemployment Act prior to the change.With this new regulation, the responsibility for state scholarships was transferred from theEmployment Service of Slovenia to the centres for social work.Although the pension system contains various redistribution elements, some pensioners still receivevery low pensions due to their low incomes during their contribution period and/or an incompletecontribution period. Pensioners with low incomes and an incomplete contribution period can applyfor a pension income supplement provided they fulfil a set of conditions, such as: a) their pension isbelow a certain threshold; b) the family in which the pensioner lives does not have other incomesources which would allow a minimum standard of living; and c) the family has negligible property.The 1999 Pension and Disability Insurance Act (PDIA) introduced the state pension which is in facta form of a means-tested benefit. As a social assistance measure, it has no place in the pension anddisability insurance act; its inclusion was the result of considerable horse-trading among the politicalparties making up the ruling coalition. Unlike the pension income supplement, where one of the maincriteria is that a person is entitled to a pension, i.e. has accumulated a sufficient contributory period,the state pension can be granted to someone who is not receiving any pension. Both benefits aredisbursed by the Institute for Pension and Disability Insurance.Subsidies form an important part of the Slovenian system of social protection. Childcare services areaffordable due to the high means-tested subsidies from public sources. Regulated by the Pre-schoolChildcare Act, these subsidies are by far the biggest single transfer to families in Slovenia and aregoverned by municipalities. Children in compulsory and upper secondary education might be eligiblefor subsidised school meals – with some of these entitlements being universal rights and othersmeans-tested. Subsidised school transport is provided for pupils in upper secondary education andtertiary students.The Slovenian social protection system plays a significant role in maintaining low poverty rates inSlovenia. However, some drawbacks have become evident over time:a) Many state and municipality authorities are involved in assessing eligibility and disbursingthe benefits. Official records are not completely harmonised among the differentauthorities which leads to the possibility of incomes being underreported.b) The Slovenian social protection system enables the accumulation of benefits: a) relatingbenefits to the fact that one is receiving some other benefit; b) the non-inclusion of allincomes and benefits in family income when deciding on benefit entitlement; c) the2


definition of income ceilings for social benefit entitlement; d) the absence of a linkageamong registers of beneficiaries of various social benefits; and e) deficient co-ordinationand co-operation among authorities granting benefits etc. For example, the 10% childcaresubsidy and free lunches in primary school that are granted exclusively to social assistancebeneficiaries.c) Work incentives are low.d) The minimum income (which is the basis for social assistance and housing benefits) hasbecome too low.Therefore, the regulation concerning social benefits has been amended and two new Acts have beenadopted. 1 The Exercise of Rights to Public Funds Act introduces a “single entry point” andharmonises the criteria for granting four types of transfers and nine types of subsidies that are meanstested.The two main goals of the changes are to simplify the procedure of applying for transfers andsubsidies for the beneficiaries, while making the system more transparent and efficient and reducingthe possibility of fraud (by cross-checking income and wealth status). Centres for social work willbecome the “single entry point” in the system of social rights. Their work on applications will besupported by a centralised information system (a web application connecting different databases).The Financial Social Assistance Act introduces changes in the areas of financial social assistance andminimum pension support, previously governed by the Pension and Disability Insurance Act(National Reform Programme 2011-2012, 2011).For the purposes of assessing this ongoing comprehensive reform a second version of the Slovenianstatic microsimulation model has been constructed. The microsimulation model was a tool forestimating budgetary effects, identifying the winners and losers and assessing the distributionaleffects.The structure of the paper is as follows: Section 2 outlines the data and methodology, Section 3briefly describes the changes in social benefits, the results are presented in Section 4, while the finalsection offers some concluding remarks.2. DATA AND METHODOLOGYFor the purposes of the reform simulations, previous versions of the microsimulation model (Čok2002, Čok et al. 2004, Majcen et al. 2007) were updated and further developed. This second versionof the Slovenian static microsimulation model is based on a cross-sectional dataset representing apopulation of all ages at a certain point in time (the year 2007). The sample consists of 40,0001 The Acts were supposed to commence operation in June 2011. Since adequate records are not ensured (especiallyproperty valuation models) and the information system is not established yet the Acts will be enforced in January 2012.3


households with 112,839 individuals (approximately 6% of the population). It is a merged databasebased on separate files from the Ministry of Finance (containing PIT records), the Ministry ofLabour, Family and Social Affairs (containing records on social benefits), the Ministry of InternalAffairs (containing data on socio-economic characteristics), the Employment Service of Slovenia(containing data on unemployment benefits and labour market status) and the Ministry of Educationand Sport (containing detailed data on scholarship recipients). Since the model is based onadministrative data (not survey data) it is high in quality and enables the simulation of practically alldirect taxes and most benefits at the individual and household levels. The model is static in time anddoes not include changes in behaviour or consequential macroeconomic second-order effects.In the first step of the microsimulation, databases from different sources are prepared in the finalform (final database) which enables the simulations. Since many households consist of two or evenmore families (for example, adults with minor children, spouses and their parents) we imputedfamilies within these households. At the end, our database consists of 112,839 individuals living in57,630 families.Secondly, the benefit system from 2007 is replicated to estimate the quality of the sample. Since theoriginal data also include social benefits calculated by a responsible authority, one might expect the“micro validation” of the model could be done by comparing the benefits calculated by the modelwith the recorded social benefits for each individual in the sample. However, this cannot be done insuch a straightforward way due to a few data limitations:Family income which is the basis for the income test for most benefits refers to the previousyear or even the year before that, meaning that 2006 income data are needed to simulatesocial benefits in 2007. As income data refer to 2007, our assumption is that income levels in2007 are exactly the same as in 2006.Social assistance is a special case since entitlement to social assistance depends on familyincomes in the three previous months. Given the data on annual incomes it is implicitlyassumed that income is received at the same rate throughout the year and monthly incomesare simply annual incomes divided by 12. The actual income position of individuals mightdrastically change during a single year and a three-month average could differ from theannual average. Social assistance is usually not received throughout the year, therefore wetake into account that social assistance is received on average 7.45 months per year (officialdata).Entitlement to some social benefits (social assistance, pension income supplement) alsodepends on family savings and property. Data on savings and property are not included in ourdatabase.4


Due to the lack of data it was impossible to simulate minimum pension support. Therefore weuse data from the dataset.At this stage, a “macro” validation of the model and its database is considered, as evident in Table 1.Child benefit is overestimated when calculated with the microsimulation model by somewhat morethan 10%, which is evident from the table below. On the contrary, the average child benefit from themicrosimulation model and administrative sources almost coincide. The calculated state scholarshipalmost coincides with the aggregate scholarship data from administrative sources. By contrast, thecalculated social assistance and data on minimum pension support 2 do not match the aggregates fromadministrative sources as well as the other two benefits, but the results are still satisfactory.Table 1: Macro validation of the main simulated benefits in a replication of the 2007 benefit systemNo. ofrecipientsin 1000Administrative data Calculated data IndexTotalamount,EUR1,000Averagebenefit(monthly),EURNo. ofrecipientsin 1000Totalamount,EUR1,000Averagebenefit(monthly),EURNo. ofrecipientsin 1000Totalamount,EUR1,000Averagebenefit(monthly),EURChild benefit 379.1 246.0 54.1 426.9 273.1 53.3 112.6 111.0 98.6Social assistance 43.6 107.1 204.6 61.4 99.0 213.8 *140.7 92.4 104.5Minimumpension support45.0 38.3 70.8 39.8 31.8 66.6 88.3 83.0 94.0State scholarship 34.6 64.7 156.0 35.4 65.5 154.3 102.4 101.2 98.9Notes: *The difference in the number of social assistances recipients might be misleading as external statisticsrefer to the average monthly number of recipients, while the number calculated with the microsimulationmodel refers to the total annual number of recipients in 2007.Sources: Own calculations, microsimulation model;Ministry of Labour, Family and Social Affairs, 2011;Institute for Pension and Disability Insurance, 2008.Thirdly, all incomes are updated to 2010 and the benefits system in 2010 is replicated to introducethe changes to legislation between 2007 and 2010. Table 2 shows that the simulation results are lesssatisfying when 2010 is considered. The calculated amount of child benefit and the number ofrecipients are overestimated by more than 15%, though the average amount of child benefit almostcoincides with the average child benefit from administrative records. Similarly, all other calculatedaggregates of social benefits are overestimated, while only the calculated state scholarship coincideswith the administrative data. The calculated minimum pension support 3 is very underestimated whichcan be explained by the underestimated number of recipients in the sample in the first place and thechanged legislation since 2008. The calculated social assistance is considerably overestimated interms of aggregate numbers and in terms of the average benefit level. The lion’s share of thisdiscrepancy lies in the already mentioned strong assumptions and data limitations which are the basis2 Minimum pension support could not be simulated for the policy year 2007 as data on the pension qualifying period arenot included in the sample but are essential for calculating the benefit. Therefore, data taken directly from the sample aretaken into account.5


for the social assistance simulations (implying that incomes are received at the same rate andproperty data are missing). In addition, the income structure most probably changed between 2007and 2010 as the minimum wage rose by 22.9% in March 2010. This increase mainly influencedpeople at the low end of the income distribution and the updating of incomes could not capture thisstructural change 4 .Table 2: Macro validation of the main simulated benefits in a replication of the 2010 benefit systemNo. ofrecipientsin 1000Administrative data Calculated data IndexTotalamount,EUR1,000Averagebenefit(monthly),EURNo. ofrecipientsin 1000Totalamount,EUR1,000Averagebenefit(monthly),EURNo. ofrecipientsin 1000Totalamount,EUR1,000Averagebenefit(monthly),EURChild benefit 374.5 289.6 64.5 432.8 342.4 65.9 115.6 118.2 102.3Social assistance 48.7 132.5 226.9 59.2 146.7 328.8 121.6 110.7 144.9Minimumpension support44.7 52.3 97.4 39.8 36.3 76.1 88.9 69.4 78.1State scholarship 39.5 73.1 154.4 50.7 96.5 158.4 128.5 131.9 102.6Notes: *The difference in the number of social assistances recipients might be misleading as external statisticsrefer to the average monthly number of recipients, while the number calculated with the microsimulationmodel refers to the total annual number of recipients in 2007.Sources: Own calculations, microsimulation model;Ministry of Labour, Family and Social Affairs, 2011;Institute for Pension and Disability Insurance, 2010.Finally, the new legislation concerning social benefits in 2010 is simulated. Then the percentagechange between the calculated aggregate amounts considering the new legislation and the calculatedaggregate amounts considering the current benefit system in 2010 is estimated. The effects ofchanges foreseen at the aggregate level are estimated for 2010 by applying this percentage change toadministrative aggregate data for 2010. Thus, data limitations and assumptions are mitigated to acertain extent.3. REFORM CHANGES CONCERNING SOCIAL BENEFITSAfter the reform is implemented all social benefits 5 will be governed by the Exercise of Rights toPublic Funds Act and the Financial Social Assistance Act. The new legislation changes familyincome which is the basis for the income test from gross family income to net family income, whichalso includes social benefits received.3 It also could not be simulated for policy year 2010.4 The changed income structure does not influence the PIT simulations as much as social benefits. PIT calculated by themodel coincides very well with the recorded PIT. The actual aggregate amount of PIT in 2004 was 3.9% higher than inour simulation5 We only focus on the four most important benefits. However it should be noted that the microsimulation model wasused to simulate other benefits/subsidies, namely: childcare subsidies, subsidised school meals, subsidised schooltransport, paid compulsory health insurance and entitlement to the full value? of health services.6


Child benefit is currently a means-tested benefit, held by one of the parents for a child residing inSlovenia. The right to a child benefit is retained until the child reaches 18 years of age, as well as forthe period in which the child continues with full-time education, but only until the child reaches 26years of age. Child benefit is only paid in case the income per family member, in the calendar yearprior to submission of a claim, was below the average wage in Slovenia. As already mentioned, a netincome approach is taken into account under the new legislation, but the income brackets remainspractically the same in absolute terms. The new legislation also reduces the age of a child’sentitlement. The right to a child benefit is held only until the child reaches 18 years. Besides, thechild benefit for eligible students included in higher secondary education (aged less than 18 yearsand with an income per family member below the average wage) is higher which is evident fromTables 3 and 4.Table 3: Monthly amounts of child benefit in 2010 – current legislationMonthly child benefit for a child from birth to the end of primaryGross family income per family memberschool, in EURas a percentage of the average gross wage3rd and every1st child2nd childsubsequent childto 15% 114.31 125.73 137.18more than 15% to 25% 97.73 108.04 118.28more than 25% to 30% 74.48 83.25 91.98more than 30% to 35% 58.75 67.03 75.47more than 35% to 45% 48.04 56.06 64.03more than 45% to 55% 30.44 38.1 45.17more than 55% to 75% 22.83 30.44 38.1more than 75% to 99% 19.88 27.5 35.11Source: Ministry of Labour, Family and Social Affairs, http://www.mddsz.gov.si/.Table 4: Monthly amounts of child benefit in 2010 – new legislationNet family income perfamily member as apercentage of theaverage net wageMonthly child benefit for a child frombirth to the end of primary school, inEUR3rd and every1st child 2nd childsubsequent childMonthly child benefit for a childincluded in upper secondary education,in EUR3rd and every1st child 2nd childsubsequent childto 18% 114.31 125.73 137.18 168.31 179.73 243.55more than18% to 30% 97.73 108.04 118.28 142.73 153.04 206.88more than30% to 36% 74.48 83.25 91.98 110.48 119.25 162.89more than36% to 42% 58.75 67.03 75.47 85.75 94.03 128.58more than42% to 53% 48.04 56.06 64.03 68.04 76.06 103.27more than53% to 64% 30.44 38.1 45.71 43.44 51.1 71.17more than64% to 82% 22.83 30.44 38.1 28.83 36.44 49.65more than82% to 99% 19.88 27.5 35.11 19.88 27.5 34.69Source: The Exercise of Rights to Public Funds Act, 2010.7


The increased amounts of child benefit for children (under 18) included in upper secondaryeducation are supposed to (at least partly) compensate for the abolition of the state scholarship formost upper secondary students. Currently, all upper secondary and tertiary students might be entitledto a state scholarship. On the contrary, only students (higher secondary and tertiary) aged 18 years ormore might be eligible for a state scholarship under the new legislation. This means that the majorityof upper secondary students will not receive any scholarship. Besides, the reform introduces a fewmore important changes: a) the family income used for the income test will be net family incomewith received child benefits included; b) family income will be compared to the average net wageinstead of the minimum wage; c) the income threshold will be raised significantly; d) the monthlyamount of the scholarship will be increased; and e) scholarship amounts will not differ according toeducation levels (upper secondary and tertiary students) as evident from Tables 5 and 6.Table 5: Monthly amounts of state scholarship – current legislationGross family income per family memberas a percentage of the minimum wageStudents in upper secondaryeducationBasicscholarshipIncomesupplementStudents in tertiary educationBasicscholarshipIncomesupplementTo 25% 38.33 54.31 57.50 54.31More than 25% to 40% 38.33 43.66 57.50 43.66More than 40% to 50% 38.33 31.95 57.50 31.95More than 50% to 60% 38.33 21.30 57.50 21.30More than 60% to 65% 38.33 0 57.50 0Source: Ministry of Labour, Family and Social Affairs, http://www.mddsz.gov.si/.Table 6: Monthly amounts of state scholarship – new legislationNet family income per family member asa percentage of the average net wageBasic scholarship with income supplementStudents in upper secondaryeducationStudents in tertiary educationTo 30% 190 190More than 30% to 36% 160 160More than 36% to 42% 130 130More than 42% to 53% 100 100More than 53 to 64% 70 70Source: The Exercise of Rights to Public Funds Act, 2010.The Financial Social Assistance Act defines a new basis for ensuring social security for the mostvulnerable population groups: a) family income which is the basis for the income test will includechild benefits received and state scholarships; b) the lowest amount of financial social assistance willbe increased; and c) an activity supplement will be granted to beneficiaries of financial socialassistance working or taking part in activities or programmes aimed at employment.8


Currently, the people entitled to cash social assistance do not have any income or receive incomebelow the family minimum income. In the case of no income, the entitled persons receive the fullstated amount; otherwise, they are entitled to receive the difference between their own income andthe family minimum income. The minimum income for a family is obtained by multiplying the basicamount of minimum income (currently EUR 229.52) by the weighted number of family members.Table 7 shows the amounts of minimum income and weights in the current and forthcoming system.Table 7:Weights for the social assistance calculation according to the current and new legislationCurrent Newlegislation legislationBasic minimum income EUR 229.52 EUR 288.81Weights:First adult in the family 1 1Activity supplement for the first adult in the family working full time 0 0.56Activity supplement for the first adult working part time 0 0.28Adults aged 18 to 26 years living with their parents and registered asunemployed at the Employment Service of Slovenia0.7 1Single persons permanently incapacitated for gainful employment or olderthan 63 years (women) or 65 years (men) living at the same address as other 1 0.7persons who are not their family membersAdults in institutional care 0 1All other adults in the family 0.7 0.5Activity supplement for all other adults in the family working full time 0 0.28Activity supplement for all other adults in the family working part time 0 0.14The oldest child in the family not included in upper secondary education 0.3 0.7All other children in the family not included in upper secondary education 0.3 0.6The oldest child in the family included in upper secondary education 0.3 0.89All other children in the family included in upper secondary education 0.3 0.79Sources: Ministry of Labour, Family and Social Affairs, http://www.mddsz.gov.si/, The Financial SocialAssistance Act, 2010.The same Act abolishes the state pension 6 and governs minimum pension support which will becompletely transformed. Minimum pension support is currently granted to pensioners with lowincomes and an incomplete contribution period, provided they fulfil a set of conditions, such as: a)their pension is lower than a certain threshold (81.6% of the lowest pension base, i.e. EUR 449.75 in2011); b) the family in which the pensioner lives does not have other income sources which wouldallow a minimum standard of living; and c) the family has negligible property. The benefit amountdepends on the contribution period, pension and number of family members (in the case of a survivorpension). Under the new legislation minimum pension support will be granted to all peoplepermanently incapacitated for gainful employment or older than 63 years (women) or 65 years6 The state pension will be replaced by social assistance and minimum pension support.9


(men), irrespective of whether they are pensioners or not 7 . The order of assessing the eligibility fordifferent benefits will be changed. Currently, social assistance comes after minimum pension supportwhereas the new regulation will change the order of these two benefits. Eligibility for minimumpension support will be assessed similarly as for social assistance. The minimum income for eligiblepersons will be increased:0.56 times the basic minimum income for a single person, first or only adult person in afamily; and0.28 times the basic minimum income for other adult persons in the family.4. RESULTSThe main results of the forthcoming reform are presented in Table 8, which includes comparisons ofadministrative aggregate data on main social benefits in 2010 and calculated aggregate dataconcerning these benefits on the assumption that the new legislation is enacted in 2010.Table 8: Calculated change in aggregates of simulated benefitsSocial benefitsAdministrative data, 2010 Calculated data, new legislation, 2010No. ofrecipientsTotalamount,EUR1,000Averagebenefit(monthly),EURNo. ofrecipientsChangein %Totalamount,EUR1,000Changein %Averagebenefit(monthly),EURChid benefit 374,466 289,643 64 296,280 -20.9 250,874 -13.4 71 10.9Changein %State scholarship(upper secondary 24,877 42,480 142 11,419 -54.1 26,920 -36.6 196 38.0students)State scholarship(tertiary students)14,609 30,661 175 31,965 118.8 80,158 161.4 209 19.4Social assistance 48,666 132,513 227 80,943 66.3 247,456 86.7 255 12.3State pension 15,443 33,676 0 0 0 0 -100 0 -Minimum pensionsupport44,747 52,306 97 47,931 7.1 76,257 45.8 133 37.1Total 581,279 681,665 +17.3Sources: Own calculations, microsimulation model;Ministry of Labour, Family and Social Affairs, 2011;Institute for Pension and Disability Insurance, 2010.The results shown in Table 8 reveal that the reform of social benefits will lead to higher governmentexpenditure as the aggregate amount of benefits will rise by 17.3%. We should keep all theassumptions and data imperfections in mind, which means that the predicted numbers only providesome orientation regarding future developments. The number of children entitled to a child benefitwill be reduced by 20% since children aged 18 years and more will lose the right to these benefits.However, the average amount of child benefit will increase, mostly due to the higher amounts of7 The name of the benefit should be changed, for example to minimum elderly support. However, we keep the name topreserve the official naming.10


child benefit for upper secondary students. More than half of all upper secondary students will losethe right to a state scholarship, but those keeping this right will receive higher scholarship amounts.On the contrary, the state scholarship for tertiary students will grow substantially in terms of both thenumber of recipients and average amounts. Similarly, social assistance and minimum pensionsupport will also increase significantly. The rise in social assistance is expected due to a higherminimum income, higher weights and activity supplements, while the increased number of minimumpension support can be explained by widening the circle of beneficiaries.The three different measures – Gini coefficient, squared coefficient of variation and the Atkinsonindex and squared coefficient of variation 8 – presented in Table 9 reveal that the overall inequalitywill slightly decrease when the new legislation is enacted. However, inequality changes were notuniform across the population; inequality among children will increase while inequality amongpersons aged 63 years or more will decrease.Table 9: Income inequality measures based on household equivalent disposable income 9Inequality measureCurrent legislationNew legislationAll Children 10 Elderly (63+) All Children Elderly (63+)Gini 0.3004 0.2732 0.2520 0.2949 0.2747 0.2328Atkinson ( 2)0.3762 0.2603 0.1843 0.3798 0.2700 0.1527I 2 0.3833 0.2980 0.2543 0.3722 0.2992 0.2264Source: own calculations, microsimulation model.Additional results of the microsimulation are presented in Table 10. Individuals are aggregated into10 decile groups regarding household equivalent disposable income. The first column presentsannual average disposable income, while all the other columns present the shares of a particularsocial benefit by income deciles.The results in Table 10 show that the reform leads to a relatively modest increase in equalisedincome and a change in the income distribution since incomes at the bottom of the incomedistribution will increase at an above-average rate. After the new legislation is enacted, more socialassistance will be disbursed to persons in the second and third income deciles. Similarly, the statescholarship will be spread across the first seven income deciles, whereas it is currently focused onthe first three income deciles. On the contrary, minimum income support is presently not disbursedto people in the first income decile as the right to this benefit is linked to the right to a pension. The8 All three measures are calculated according to Cowel (1977).9 Household disposable income is calculated as the sum of net income subject to PIT and income not subject to PIT(social transfers). To calculate equivalent disposable income, the OECD’s equivalence scale is used, which gives aweight of 1 for the first adult (over 16 years), a weight of 0.7 for the second and subsequent adult and a weight of 0.5 forany child.10 A child is defined as a person below 18 or 26 years if they are a full-time student.11


eform will change the nature of this benefit which will focus largely on persons from the first twoincome deciles.Table 10: Average equalised income and shares of social benefits by income deciles under thecurrent and new legislationIncomedecileAverage equalisedincome, in EURSocialassistance Child benefit Income pensionsupportCurrent legislationState scholarship(upper secondarystudents)State scholarship(tertiary students)1 1,706 67.1 13.5 0.2 20.0 19.32 4,116 31.9 25.5 30.5 33.8 29.23 5,876 0.8 16.8 38.5 26.1 27.94 6,953 0.1 13.2 15.8 14.8 17.05 7,923 0.0 10.0 6,0 4.2 5.26 8,933 0.1 7.4 5.3 0.9 0.87 10,084 0.0 5.1 2.0 0.2 0.58 11,538 0.1 4.2 0.9 0.0 0.19 13,807 0.0 3.6 0.5 0.0 0.110 21,386 0.0 0.6 0.3 0.1 0.0Total 9,457 100 100 100 100 100New legislation1 2,028 55.7 13.8 32.7 10.2 10.32 4,362 41.2 26.2 46.2 18.8 16.33 5,802 2.4 16.9 16.1 17.5 16.64 6,925 0.4 13.4 3.1 15.7 13.85 7,984 0.1 10.3 0.8 13.0 14.06 9,025 0.0 7.6 1.1 13.8 13.47 10,161 0.1 4.7 0.1 9.1 12.08 11,540 0.0 3.6 0.0 1.8 3.49 13,782 0.0 2.9 0.0 0.0 0.310 21,382 0.0 0.5 0.0 0.0 0.0Total 9,517 100 100 100 100 100Source: own calculations, microsimulation model.To avoid a (too) big volume of information, in the rest of this section we only compare the incomesituation of different family types after the change in legislation. The results in Table 11 reveal thatthe reform will improve the income position of approximately one-third of families with pre-schoolchildren, and make it worse for the another third of families with children. Families with uppersecondary students will experience a drop in the average amount of social benefits, although theshare of families better off is higher than the share of families worse off. Conversely, the elderly willreceive considerable higher social benefits on average, although the share of families with worse offelderly is relatively high. The reason lies in the changed nature of this benefit and the redistributionof minimum pension support.12


Table 11: Total effect of the forthcoming reform, by family typeFamilies withFamilies betteroff, %Families worseoff, %Annual amount of allbenefits per equivalentadult, currentlegislation, in EURAnnual amount of allbenefits per equivalentadult, new legislation,in EURPre-school children 31.1 33.4 795 819Children in primary school 35.7 35.9 836 848Students in uppersecondary education52.8 44.8 1,149 1,069Students in tertiaryeducation39.6 60.4 948 1,050Persons aged 63 or more 41.1 37.7 1,010 1,381Notes: Only families receiving social benefits under the current or new legislation are included.Source: Own calculations, microsimulation model.5. CONCLUSIONSNew legislation governing social transfers was adopted in July 2010 and is supposed to be enacted inJune 2011. The Slovenian social transfers system has become characterised by claims that the systemwas regulated by too many different acts and institutions which led to unharmonised official records.Besides, work incentives are low and the accumulation of benefits is possible. The new legislationchanges the eligibility rules for most social benefits which will influence the income position ofbeneficiaries and the income distribution. To a certain extent, the new legislation is based onestimations performed by the microsimulation model which was constructed for the purposes of thereform. Several administrative databases were merged to form a single database which contains asample of 6% of the Slovenian population and represents a comprehensive fundament for themicrosimulation. As the results in the paper show, the expected consequences of the reform arerelatively extensive and give benefits mostly to individuals and households at the bottom of theincome distribution. However, this reform will harm the government budget in the short run asexpenditure on the simulated social benefits is supposed to rise by EUR 100.4 million (by 17% atcurrent expenditure for the simulated benefits). At the moment Slovenia faces an unfavourablefinancial situation. The general government deficit in 2010 was estimated at EUR 1,987 million or5.5% of GDP and general government consolidated gross debt at the end of 2010 at EUR 13,704million or 38.0% of GDP (Statistical Office of the Republic of Slovenia, 2011). Therefore, theSlovenian government postponed the enforcement of both Acts to the beginning of 2012. Animproperly established information system and inadequate official records contributed to thispostponement.13


REFERENCESCowell F.A. (1977), Measuring Inequality, Oxford: Philip Allan.Čok M (2002) “A Microsimulation Model for Slovenia’s Personal Tax System”, Economic andBusiness Review, 4(1), 75-92.Institute for Pension and Disability Insurance (2008, 2010). Annual report 2008-2011. (available at:http://www.zpiz.si/wps/wcm/connect/zpiz+internet/zpiz/prvastran/publikacije/letnaporocila)Government of the Republic of Slovenia (2011). National Reform Programme 2011-2012. Ljubljana,April 2011.Majcen B, Čok M, Verbič M and Kump N (2007) Razvoj in uporaba mikrosimulacijskega modela.Ljubljana: Inštitut za ekonomska raziskovanja.Majcen B, Bayar A, Mohora C, Čok M, et al. (2006) Analiza kompleksnih sektorskih in makroučinkov davčne reforme in reforme socialnih transferjev z uporabo dinamičnega modela splošnegaravnotežja slovenskega gospodarstva, Ljubljana: Inštitut za ekonomska raziskovanja.Ministry of Labour, Family and Social Affairs (2011). Statistics. (available at:http://www.mddsz.gov.si/si/uveljavljanje_pravic/statistika/)Redmond G, Sutherland H and Wilson M (1998) The Arithmetic of Tax and Social Security Reform.A User’s Guide to Microsimulation Method and Analysis, Cambridge: Cambridge University Press.Statistical Office of the Republic of Slovenia (2011). Main aggregates of the sector GeneralGovernment, Slovenia, 2007 – 2010. Ljubljana: Statistical Office of the Republic of Slovenia.(available at: http://www.stat.si/eng/novica_prikazi.aspx?id=3820).Stropnik, N. and Stanovnik T. (2002). Combating Poverty and Social Exclusion - Volume 2, A CaseStudy of Slovenia. Budapest: International Labour Office.The Exercise of Rights to Public Funds Act. Official Gazette of the Republic of Slovenia, No.62/201).The Financial Social Assistance Act. Official Gazette of the Republic of Slovenia, No. 61/2010.14

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