Nova workboard

a blog from young economists at Nova SBE

RSI reductions: goods and bads

We are living crisis times.

There’s our own crisis and then there’s the international crisis that affect us.

In Portugal we see unemployment rates grow up nonstop and the consumption levels decrease.

One of the several government programs of low income support is the social insertion income (RSI), which this year suffered some changes and the conditions for attribution of this benefit got more restricted.

On one hand, It can be positive once the government will be able to reduce its expenditure with the RSI, which is very good since Portugal is facing high deficit and, as consequence, extremely elevated levels of external debt.

RSI represents about 1,3% of social security current expenditure. In 2013, the expenditure with the RSI was reduced 24,1%.

This reduction in the RSI may also work as an incentive for the household’s elements of working age to work.

On the other hand, we cannot say the same about the children or disabled individuals, whom are more fragile and dependent, consequently needing special protection. For these groups the changes in criteria were curiously even more aggressive. Let’s just take a look at the numbers: the percentage for each individual adult dependent was 70% of the total (for adult €189,52) and now is 50% (for adult €178,15), and for each minor was 50% and now is 30%.  

It’s certainly necessary to closely monitoring the total benefits received by each household; however, the possibility of the existence of a free-rider – someone who improperly takes advantage from this supports – will probably always exist. As it will probably always exist some people who need this support but for whatever reason (attribution criteria, social stigma, lack of information…) won’t be able to get covered by this benefit.  

In-kind benefits, for instance, are an alternative for problems as: does the money go to the right place? Will the consumer spend it wisely? But then It would not be so good on the consumer choice matter. He wouldn’t be able to choose and prioritize where to spend this financial support, and he wouldn´t be able to achieve such a higher level of utility as If he had that choice.

Portugal is one of the countries where the inequality of income distribution is higher, even above the EU27 average. The Income quintile share ratio for Portugal was 5,7 in 2011, and for the EU27 was 5,1.

In 2011, the percentage of population at risk of poverty after social transfers in Portugal was 18, above the EU27 (16,9%).

Therefore, policy makers and those who implement these reforms shall take in account principles like equity, social justice, efficiency and the maximization of the society’s welfare.

 

Sara Simões

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Author: studentnovasbe

Master student in Nova Sbe

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