Policy-makers attempt to accomplish three broad goals in designing benefit systems: supporting low-income families, especially with children; encourage economic self-sufficiency; and keep public costs low. The three objectives clearly involve trade-offs and over the years, the emphasis given to each has changed. In the 1960s and 1970s, the focus was on poverty reduction. In the 1980s, cost reduction took over as the main policy objective. More recently, the self-sufficiency theme has emerged strongest.
Comparisons of the effect of public policy on the incomes of those without work are difficult because of the complexity of national tax and benefit systems. As a proxy, the OECD estimates net replacement rates, which is the proportion of net income from work that is replaced by unemployment and related welfare benefits. The rates are calculated for families whose principal earner is not working and take into account unemployment, family and housing benefits.In general the combination of higher benefit rates and reduced tax payments usually ensures that replacement rates for couples with children are higher than for single people. The net replacement rates for single people range from the lower end, such as Ireland (33%), Italy (36%), Australia (37%) and Poland (38%), to countries at the upper end, like the Netherlands (75%), Spain (76%), Portugal (79%) and Luxembourg (82%).For married couples with children the ranking changes. Poland has the lowest net replacement rate at 43%, followed by Greece (46%) and Korea (52%), though Italy remains low (54%). Ireland’s position rises somewhat compared with the singles scenario, to over 60%. Luxembourg still occupies the top spot, with an 87% net replacement rate, followed by the Netherlands (85%). Family benefits also boost the ranking of the Scandinavian countries, where benefits for couples with children are sizeable.End
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©OECD Observer No 219, December 1999