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Journal Article

Estimating the impact of a policy reform on benefit take-up: the 2001 extension to the minimum income guarantee for UK pensioners

Authors

Publication date

2010

Summary

Evidence suggests that a substantial portion of individuals entitled to receive welfare benefits do not
claim them, thus compromising the effectiveness of government programmes designed to reduce
poverty. Take-up is particularly low for means-tested benefits requiring an evaluation of income and
assets of the claimant. Existing qualitative research on welfare participation emphasises claim costs
arising from the difficulty and hassle of making a claim and other intangible costs such as distaste for
welfare participation and social stigma associated with dependence on benefits. The phenomenon
seems to be particularly severe for British pensioners. Official estimates report that, although
approximately 2 million pensioners were living in low income households in 2000-01, between a third
and a quarter of them did not claim the Minimum Income Guarantee payments to which they were
entitled. It has been suggested that pensioners experience more difficulties than others in acquiring
information and pursuing a claim.
Most economic analyses of take-up behaviour have considered claiming as a rational choice based on
a comparison of the expected benefits from welfare participation with the tangible and intangible costs
of applying, so that the individual chooses to search for information and make a claim if the expected
benefit adequately compensates for the costs. Typical research studies use individual-level survey data
on income and asset holdings to simulate benefit entitlements and, for those believed to have positive
entitlements, a statistical model is estimated for the probability of take-up of the entitlement. A well
established result in the literature has been the positive impact of the benefit entitlement level on the
claiming decision. In other words, sufficiently large levels of entitlements work as an incentive for more
people to overcome the claim barriers.
This standard approach, involving modelling of the takeup probability, has some drawbacks: particularly
the risk of misspecifying the statistical model and of measurement error in simulated entitlements,
arising from the unreliable nature of survey responses on income and assets. The main aim of this
paper is to test directly whether there is a response of takeup behaviour to incentives, using an
approach that is less vulnerable to specification and measurement error. We examine a 2001 policy
reform, which substantially increased the Minimum Income Guarantee entitlements levels and relaxed
eligibility criteria. We try to identify the effect of this increase in entitlement on the take-up behaviour of
older British pensioners by comparing the benefit receipt of otherwise similar pensioners from the preand
post-reform periods.
We find that the take-up of the Minimum Income Guarantee was significantly increased by the 2001
reform for those with the largest potential gains from claiming. These results support the idea that
higher entitlement levels do provide an effective incentive for welfare participation and they are
reassuringly close to results previously obtained using the conventional statistical modelling approach.

Published in

Economica

Volume

77 (306): 234-254

DOI

http://dx.doi.org/10.1111/j.1468-0335.2008.00755.x

Links

http://serlib0.essex.ac.uk/record=b1597373~S5

Notes

Originally 'Early View' 29 Dec. 2008; Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

#513370


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