The effectiveness of Luxembourg’s minimum guaranteed income

Using micro-data for the year 2007, this article analyzes the effectiveness of Luxembourg’s minimum guaranteed income (revenu minimum garanti — RMG) social assistance programme. First, we examine the effectiveness of the RMG by comparing the proportion of eligible households based on the different criteria for the years 2007 and 1986, and find that, in 2007, 5.5 per cent of households were eligible versus 3.75 per cent in 1986. A relaxation of the RMG’s eligibility criteria implies that more low-income households should have access to the RMG. As a second measure of programme effectiveness, the article estimates the extent of non-takeup behaviour among those eligible for the RMG in 2007. It is found that just over 65 per cent of all households potentially entitled to the RMG do not claim. Regression analysis of the potential determinants of non-takeup behaviour confirms the hypotheses derived from theoretical models in the literature, i.e. that rational motivation, such as the expected net utility from claiming, and stigma, play a major role in explaining levels of non-takeup.