Measuring and Explaining the Limited Take-up of the Housing Benefit in the Netherlands

It is well known that the take-up rate of the Dutch housing benefit and other means tested benefits is substantially below 100%. In order to measure non-take up one usually has to simulate entitlement to the benefits. In this paper we take a closer look at the quality of the simulation. We find evidence that simulation error is much more important than has often been assumed in earlier studies. These studies use the simulation of entitlement in order to select the sample on which an explanatory model for the take-up decision is based. Simulation error may therefore lead to biases in the explanatory analysis. Our analysis suggests that a discrepancy between the income that is reported in our database and the income on which the decision to apply for the benefit is based is an important source of simulation error. The data that were available for this study contain information about refused applications and therefore allow us to estimate a richer model than is conventionally used for the analysis of take-up rates. In this model both the decision of a renting household to apply for the benefit and that of the authorities to grant or refuse the subsidy are analyzed. Estimation results for this model differ from that of the first. A third model is explicitly based on the assumption that the decision-making processes are based on an income level that may be different from that reported in the data. For households that receive the housing benefit we can compute this alternative income. This third model can be estimated if it is assumed that the same joint distribution of the two incomes is relevant for households who did not apply for the benefit. Estimation results for this model are again different from those of the other two. They suggest that measurement error in rent, received benefits or housing composition are also more important that has been thought.