VILNIUS UNIVERSITY Jekaterina Navickė THE ROLE OF CASH SOCIAL BENEFITS IN POVERTY REDUCTION IN LITHUANIA: DISCIPLINE, REDISTRIBUTE, INCLUDE, INVEST Doctoral Dissertation Social Sciences, Sociology (05S) Vilnius, 2015 The Doctoral Dissertation was prepared at Vilnius University in 2010-2015. Academic supervisor: Prof. Dr. Romas Lazutka (Vilnius University, Social Sciences, Sociology, 05S). 2 CONTENTS ACRONYMS AND ABBREVIATIONS .......................................................... 8 INTRODUCTION ............................................................................................. 9 1. THE PROBLEM OF POVERTY AND REDUCTION STRATEGIES: A SCHEME FOR ANALYSIS ................................................................. 17 1.1. Attribution of the causes of poverty ........................................................ 19 1.1.1. Poverty as deviation ....................................................................... 22 1.1.2. Poverty as a basic needs problem ................................................... 25 1.1.3. Poverty as social exclusion ............................................................ 27 1.1.4. Poverty as a lack of capability for functioning .............................. 31 1.2. Poverty reduction strategies and critique ................................................ 34 1.3. The causes of poverty and reduction strategies: a theoretic scheme ...... 41 1.4. Changes in poverty reduction strategies in the EU ................................. 45 1.4.1. Individualization in social protection ............................................. 48 1.4.2. Europeanization in social protection .............................................. 51 1.4.3. A shift away from redistributive policies? ..................................... 53 1.5. The role of cash social benefits in poverty reduction ............................. 54 1.5.1. The disciplinary role ....................................................................... 57 1.5.2. The redistributive role .................................................................... 59 1.5.3. The social inclusion role ................................................................ 63 1.5.4. The social investment role .............................................................. 65 1.6. Conclusions ............................................................................................. 69 2. POVERTY REDUCTION AND CASH SOCIAL BENEFITS IN LITHUANIA: STRATEGIES, PREVIOUS RESEARCH, STATISTICS 2.1. The problem of poverty and poverty reduction strategies in Lithuania .. 71 2.2. The development of the system of cash social benefits .......................... 78 2.3. The design of the system of social cash benefits .................................... 88 2.4. The capacity and the results of cash benefits in reducing poverty ......... 97 2.5. Conclusions and implications for further research ............................... 107 3. RESEARCH METHODOLOGY ............................................................ 112 3.1. The aim and goals ................................................................................. 112 3 3.2. Methods ................................................................................................. 113 3.3. Operationalization and measurement of poverty .................................. 115 3.3.1. Measuring poverty in relative terms............................................. 116 3.3.2. Measuring poverty by using income metric ................................. 118 3.3.3. Measuring poverty by using household level characteristics ....... 120 3.3.4. Formulae for measuring relative income poverty ........................ 122 3.4. Data ....................................................................................................... 123 3.5. Definition and categorization of cash social benefits ........................... 127 3.6. Limitations ............................................................................................ 129 4. THE FOURFOLD ROLE OF CASH SOCIAL BENEFITS IN POVERTY REDUCTION IN LITHUANIA: THE FINDINGS ................................ 130 4.1. The disciplinary role: impact of cash social benefits on work incentives 4.1.1. Measurement: marginal effective tax rates .................................. 132 4.1.2. Work incentives at the bottom of the income distribution ........... 136 4.1.3. Model family indicators of work incentives for Lithuania .......... 143 4.1.4. Conclusions .................................................................................. 154 4.2. The redistributive role: protection against income shocks and risks .... 156 4.2.1. Measurement: poverty persistence, transitions and triggers ........ 158 4.2.2. Poverty dynamics: high incidence and rotation of the poor ......... 162 4.2.3. Poverty triggers and protective role of cash social benefits ......... 168 4.2.4. Conclusions .................................................................................. 178 4.3. The social inclusion role: benefit coverage .......................................... 180 4.3.1. Measurement: benefit coverage ................................................... 182 4.3.2. Survey-based evidence on cash social benefit coverage .............. 184 4.3.3. Conclusions .................................................................................. 193 4.4. The social investment role: investment in families with children ........ 195 4.4.1. Measurement: needs-based investment and decompositions ....... 198 4.4.2. Reflection of child needs in cash social benefit design ................ 201 4.4.3. Investment in children living in poor families ............................. 207 4.4.4. Conclusions .................................................................................. 211 5. DISCUSSION ......................................................................................... 213 6. CONCLUSIONS ..................................................................................... 217 7. RECOMMENDATIONS ........................................................................ 224 4 REFERENCES .............................................................................................. 227 ANNEXES ..................................................................................................... 240 Annex 1. Distribution of the marginal effective tax rates (METR), % Annex 2. Decomposition of the METR by element of tax-benefit system, % Annex 3. Coverage of the cash social benefits by income quintile, % Annex 4. Self-reported economic status of the population by coverage type, % TABLES Table 1. The development of the cash social benefits’ system in Lithuania .... 79 Table 2. In-work at-risk-of-poverty rate by work intensity, % ........................ 97 Table 3. OECD/EC indicators of work incentives for Lithuania in 2013, % of extra gross earnings that is taxed away ........................................................... 144 Table 4. EUROMOD-based indicators of work incentives for Lithuania in 2013, % of extra gross earnings (total / due to cash benefit withdrawal)....... 148 Table 5. Overall, between-individual and within-individual variation of non- poor and poor spells, 2005-2013 SILC ........................................................... 163 Table 6. Total current and longitudinal at-risk-of-poverty rates, 2005-2013 . 164 Table 7. Durations of at-risk-of-poverty spells by household characteristics in 2005-2013, % .................................................................................................. 166 Table 8. At-risk-of-poverty entry triggers and probabilities, 2005-2013 ....... 169 Table 9. Insured poverty entry triggers and benefit receipt, 2005-2013 ........ 171 Table 10. At-risk-of-poverty exit triggers and probabilities, 2005-2013 ....... 173 Table 11. Logistic regression for the probability of entering poverty ............ 175 Table 12. Child needs by age, % of the median eq. disposable income ......... 199 Table 13. Non-contributory pregnancy and birth grants in 2005-2013, Eur. 206 5 FIGURES Figure 1. Poverty reduction strategies in social protection .............................. 42 Figure 2. The effects of individualization and Europeanization of social protection on poverty reduction strategies ........................................................ 47 Figure 3. Disciplinary, redistributive, social inclusion and social investment features of cash social benefits ......................................................................... 68 Figure 4. The Lithuanian system of cash social benefits over life-course ............ 93 Figure 5. Coverage and expenditure on contributory and non-contributory social benefits in Lithuania , % of total in 2005-2013 ...................................... 95 Figure 6. The percentage of the marginal effective tax rates above 50% in the first decile of equivalised disposable income ................................................... 99 Figure 7. The cash social protection benefits as % of GDP, 2005-2012 ........ 100 Figure 8. The percentage of social benefits’ recipients in population aged 18-59 with eq. disposable income below 40% of the median, 2010 ......................... 101 Figure 9. Child and family cash social benefits as % of GDP, 2005-2012 .... 103 Figure 10. At-risk-of-poverty rates among children by age, 2005-2013 ........ 104 Figure 11. Average at-risk-of-poverty rate before and after social benefits in 2005-2013, % .................................................................................................. 105