Assessing design principles and possible impacts of an in-work benefit scheme in Greece

The paper provides a comprehensive analysis of the potential benefits and challenges of a possible in-work benefit scheme in Greece. It reviews the design of in-work benefits in other EU countries and identifies key considerations for implementing such a scheme in an effective way. The paper discusses an illustrative in-work benefit for Greece, which would offset the employee social insurance contributions of low-income earners up to a certain threshold and estimates its fiscal and distributional impact. For doing so, the paper combines the use of the tax-benefit microsimulation model EUROMOD, and of EUROLAB, a discrete choice econometric model that allows to determine the impact of policy reforms on labour supply. Estimates suggest that the scheme could increase labour market participation by 0.9 percentage points of the workforce, particularly among women. This would add approximately some 60,000 additional workers to the economy and increase overall labour hours by 1.2%. The overall fiscal cost of the new scheme is estimated at €290 million a year once second-order employment effects are accounted for. These findings also suggest that the at-risk-of-poverty rate would decrease by approximately 0.6 percentage points for the active population.