An Asset-Based Indicator of Wellbeing for a Unified Means Testing Tool: Money Metric or Counting Approach?

Abstract

As part of the Europe 2020 strategy, European member states have committed to modernize and harmonize their welfare systems and to improve the quality of the means testing tools adopted to correctly identify the beneficiaries of welfare policies. This study contributes to the literature on means testing by implementing and then comparing two alternative multidimensional targeting approaches: an asset-based money metric and a counting measurement of poverty. The two approaches aggregate poverty dimensions and implement inter-household comparisons of wellbeing differently. The study shows that in terms of targeting efficiency the approach based on the money metric is superior. The comparison is relevant both from an empirical and a policy point of view because a unified means testing tool would pave the road towards harmonized welfare policies across European countries.

Keywords: means testing, multidimensional poverty, asset based poverty, well-being

JEL Classification: D13, H31, I32, O15