Developing a safety net for Ukraine
This dissertation explores issues of development of social safety nets in countries in transition,
Ukraine in particular. The dissertation explores whether reducing social security expenditures to
stimulate economic growth policy is an effective way to combat poverty in a transition country
based on the case of Ukraine. The dissertation provides overview of the current development of
social safety nets in the Eastern Europe and CIS countries, and discusses in great detail social safety
net in Ukraine. The dissertation develops a sequence of increasingly sophisticated forecasting
models to explore fiscal and economic implications of recent increases in social welfare spending in
Ukraine: a simple (naïve) model macroeconomic model; a macroeconomic model with GDP
feedback; and a microsimulation model.
The analysis based on the models suggests that the naïve macroeconomic model may significantly
underestimate costs of SSN in Ukraine. More sophisticated models with GDP feedback of social
expenditures estimate significantly higher costs of SSN as percent of GDP. The model is based on
the parameters, estimated over the sample of developed countries. Because developing countries
may be more responsive to the changes in the size of expenditures than developed countries, the
size of the effect of reduction in social expenditures may be smaller than the actual effect. However,
the model with GDP feedback provides better conservative estimate of the costs of SSN reforms
than simple model.
In order to study micro-level effects of the social safety net reforms, the dissertation creates several
microsimulation models for Ukraine. Simple micro-level model suggests that it is possible to
establish budget-neutral minimal income guaranty policy in Ukraine that significantly reduces
number of people living in extreme poverty compare to current policy. However, the budget-neutral
policy can not guaranty income at the levels currently established by Ukrainian policy makers.
The dissertation demonstrates that there is sufficient data in Ukraine to create static microsimulation
models similar to TRIM model in the United States. This microsimulation model extends simple
micro-level model by incorporating behavioral response to increase in social benefits. The model
predicts higher costs of SSN reform than the macroeconomic models.
Policy analysis based on the microsimulation model suggests that a policy of increasing social
benefits in the current social safety net system would be the least optimal policy within the scope of
evaluated policies to reduce number of people in poverty while sustaining economic growth. The
dissertation concludes that available SSN financial resources would be more effective in reducing
poverty if current social safety net programs were substituted by a minimal subsistence level
income guarantee program. The minimal income guaranteed by the program should be substantially
lower than the current minimal subsistence level in Ukraine. The economic growth in the country
induced by this policy is estimated to have better long-term poverty-reduction effect than current
social safety net.
School:Pardee Rand Graduate School
School Location:USA - California
Source Type:Master's Thesis
Keywords:economic development macroeconomics expenditures public social policy ukraine
Date of Publication: