1. The impact of family friendly policies in Spain and their use
2.5. Effectiveness and Efficiency of the MIS
2.5.1. Beckerman’s Model
The concept of poverty reduction efficiency was developed by Beckerman (1979). Efficiency is defined in a manner that takes into account total expenditures as well as their impact on poverty gaps. Figure 2.3. Beckerman diagram
The horizontal axis represents individuals ranked in increasing order of disposable income (poorest on the left) and the vertical axis represents their income. The diagonal lines represent the pre-MIS income and the post-MIS income of the population. The horizontal line is the poverty threshold.
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Area C can be interpreted as total amount of MIS received by pre-MIS non-poor considered as “badly distributed”. This amount of money is transferred inefficiently because it neither takes people out of poverty nor reduces the poverty gap. Area B is the excess amount of benefits received by the pre-poor, i.e. the difference between the amount of benefits received by the poor and the amount by which their poverty gap is reduced. If the sole objective of the MIS is to reduce poverty (which is not, as it tries to incentivize exits into employment too) the spillover could be considered as “excess” payment. Area D represents the extra income that post-poor households need to get out of poverty. Area A can be interpreted as the total amount of MIS received by pre- MIS poor considered as “well distributed”, i.e. that effectively reduces the poverty gap. Finally, the amount of benefits needed to eradicate poverty can be obtained from the areas D-B-C. Therefore, from an optimal point of view in terms of effectiveness and efficiency in eradicating poverty, areas D, B and C should be zero.
Summarizing, the areas correspond to the following figures: A+B+C = total expenditure on MIS.
A + B = total amount of benefits received by pre-MIS poor. A + D = pre-MIS poverty gap
D = post-MIS poverty gap.
Beckerman presents one effectiveness and two efficiency measurements: Overall poverty reduction effectiveness (OPRE): The proportion of the pre-benefit poverty gap reduced by transfers.
𝑂𝑃𝑅𝐸 = 𝐴 𝐴 + 𝐷
Therefore, OPRE is 100% when D = 0
Vertical expenditure efficiency (VEE): The proportion of benefits accruing to people who would have been poor in the absence of
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benefits, i.e. proportion of total transfers received by those individuals that were poor before the program.
𝑉𝐸𝐸 = 𝐴 + 𝐵 𝐴 + 𝐵 + 𝐶
Poverty reduction efficiency (PRE): The net extent to which benefits reduce poverty. That is to say, the proportion of transfers that effectively contributes to a reduction in poverty, expressed by the poverty gap. Note that only the A amount contributes to reducing the pre-transfer poverty gap.
𝑃𝑅𝐸 = 𝐴 𝐴 + 𝐵 + 𝐶
Therefore, the PRE is 100% when B+C = 0.
These concepts of efficiency take into account the “waste of resources” associated with the transfers made to the non-pre-poor population and the excess payment to the non-post-poor population22.
Stimulus to employment
One aspect of the legislation with regard to the amount of MIS which must be taken into account when assessing efficiency is the incentives for the beneficiaries to find a job, i.e. the so-called “stimulus to employment”. These incentives are established in order not to discourage MIS recipients from looking for a job. If there are wage incomes in the household (and the total disposable income does not exceed the poverty line), a certain percentage is excluded when the
22 It should be noted that a high level of efficiency of the program does not imply that poverty is greatly reduced (for example, when the amount of money transferred is low); nor does a low level of efficiency imply that there has been an insignificant reduction in poverty (giving more than required to poor individuals). Efficiency explains why the program has had a certain impact given the amount of money spent (Rodriguez, 1997).
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corresponding MIS transfer is calculated. The dataset does not include a variable that indicates which part of the MIS corresponds to the stimulus to employment. However, know whether there are wage incomes in each household and what their amount is. Therefore, following equation [2.1], it is possible to calculate the amount of the stimulus to employment that corresponds to each household.
In Beckerman’s diagram the post-benefit line does not include the stimulus to employment calculated for households with wage incomes, for the sake of clarity of exposition. Thus, only the fraction of the MIS that is intended to eradicate poverty (and not that which is to accelerate job finding) is represented, in line with the purpose of the diagram. When calculating efficiency measures, stimulus to employment must be also taken into account, as it cannot be interpreted as an overpayment. Given that it is not possible to distinguish which part of the MIS corresponds to such stimulus and which to the legal amount of MIS to be received by the household, I proceed as follows:
- Area C includes all MIS transfers received by non-pre-poor households, regardless of whether they correspond to the stimulus to employment or not, as such households should not receive any payment because they are not poor.
- Areas A and D reflect the poverty gaps. Stimuli to employment are not supposed to affect them since they should be interpreted as an extra payment beyond the poverty line. Area A might include some stimulus to employment but it is not possible to distinguish whether the lack of measurement comes from the incentives or from the legal amount of MIS that each household should obtain. Therefore, stimulus to employment does not affect the effectiveness of the policy.
- Area B (the excess amount of benefits received by the pre-poor) is the one affected by the stimulus to employment, as it cannot be interpreted
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as an overpayment. In order to take the stimulus into account, area B is re-calculated as follows: for pre-poor households with wage incomes the poverty line is shifted upwards according to formula [2.2]. The new poverty line for these households is the previous one plus the stimulus to employment that theoretically corresponds to them given the wages earned. Therefore, only the MIS amount that exceeds this re-calculated poverty line is taken as an overpayment, which compounds Area B.