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Policy Contribution

Why is it so hard to reach the EU’s ‘poverty’ target?

The ‘poverty’ target set by the European Commission aims to lift “over 20 million people out of poverty” between 2008 and 2020 in the EU27. Progress to date against this target has been disappointing. Why is it so hard to reach the Europe 2020 ‘poverty’ target? What does the poverty indicator actually measure?

By: Date: January 19, 2017 Topic: European Macroeconomics & Governance

  • The Europe 2020 strategy for smart, sustainable and inclusive growth set a target of lifting more than 20 million people out of poverty, but European Union countries have struggled to make progress towards the target.
  • Zsolt Darvas demonstrates both theoretically and empirically that the ‘poverty’ indicator in the Europe 2020 strategy essentially measures income inequality, not poverty.
  • His illustrative calculations show that even after taking into account the positive impact expected economic growth should have on material deprivation and low work intensity, the Gini coefficient of income inequality would have to fall by four points in each EU country if the Europe 2020 ‘poverty’ target is to be reached. This would be a huge decline.
  • Enormous differences between ‘poverty’ thresholds adopted by different EU countries make the EU-wide ‘poverty’ aggregate pointless.
  • Even though 24 percent of EU citizens are deemed to be poor or socially excluded, we find that social issues receive little attention in the European Semester, which is supposed to support the achievement of Europe 2020 targets.
    The few relevant recommendations that have been made targeted poverty, employability and social exclusion, which are important goals. There have been no specific measures to reduce income inequality.
  • The political agreement between EU member states clearly expressed the goal of reducing poverty, not inequality. It was a grave mistake to base the Europe 2020 poverty target on an indicator of income inequality and to speak about ‘poverty reduction’ in relation to that indicator.
  • The European Council should meet again to discuss what social goals to pursue, and to adopt corresponding indicators and strategy.
  • There are good reasons to aim for lower income inequality, which would require further measures such as more progressive income, wealth and inheritance taxes, better opportunities for disadvantaged and poorer families, with implications for education systems and labour market institutions, and the curtailing of unjustified rents enjoyed by certain segments of society.
  • The author suggests that the misleading label of the Europe 2020 target indicator ‘at risk of poverty or social exclusion’ be replaced with ‘relative income poverty or income inequality or potentially social excluded’, which may sound convoluted, but would be better than the current short but misleading name.
  • New poverty indicators should be developed, such as considering the cost of a specific basket of goods and services as the threshold. Beyond headcount, the calculation of poverty gaps and other indicators that show the depth and severity of poverty would be important.
  • EU-wide poverty and income distribution indicators should consider the distribution of income within the EU as a whole.
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Parliamentary Testimony

European Parliament

Combating inequalities as a lever to boost job creation and growth

This presentation was delivered in Brussels at the Employment and Social Affairs Committee (EMPL) of the European Parliament on 29 May 2017.

By: Zsolt Darvas Topic: European Parliament, Testimonies Date: June 20, 2017
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Upcoming Event

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Perspectives on Universal Basic Income

At this event, we will discuss the possible benefits but also the possible disadvantages of Universal Basic Income.

Speakers: Grégory Claeys, Olli Kangas, Professor Philippe Van Parijs and Prof. Dr. Hilmar Schneider Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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By: Silvia Merler Topic: European Macroeconomics & Governance, Global Economics & Governance Date: June 12, 2017
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Speakers: Cristina Cabrera, Zsolt Darvas, Maria Demertzis, Alejandra Kindelán, Robert Lawrence and Federico Steinberg Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Calle Los Madrazo 36-38 Madrid Date: May 31, 2017
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By: Silvia Merler Topic: Global Economics & Governance Date: April 24, 2017
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Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
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By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
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Policy Contribution

Making the best of the European single market

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness. Completing the single market would unlock the EU's growth potential. At the same time, the EU should empower member states to fight inequality by helping them better distribute the gains arising from economic integration.

By: Vincent Aussilloux, Agnès Bénassy-Quéré, Clemens Fuest and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 2, 2017
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Speakers: Tharman Shanmugaratnam and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 26, 2017
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By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 13, 2016
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