IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v48y2026i1p107-129.html

Escaping the inactivity trap? The work incentive of the Spanish minimum income

Author

Listed:
  • Cruces, Hugo
  • Hernández, Adrián
  • Narazani, Edlira

Abstract

The Spanish Minimum Income scheme, introduced in 2020, offers beneficiaries a unique national guaranteed income as a last-resort benefit. However, the scheme’s design featured a lack of work incentives for low earners, potentially leading to inactivity traps. To address this flaw the Spanish government introduced an earnings disregard in 2022, enabling beneficiaries to keep all or part of the benefit when their earnings increase up to a certain limit. This paper provides an ex ante assessment of this reform, looking into its expected fiscal, distributional and labour market effects using the tax–benefit microsimulation model EUROMOD, and the behavioural labour supply model EUROLAB. Our results show that the reform has the potential to incentivise work for very low earners, particularly lone parents, mainly by promoting part-time employment. The reform and its subsequent employment effects are also expected to slightly reduce inequality and poverty. While this is a step in the right direction, we discuss some avenues for improvement.

Suggested Citation

  • Cruces, Hugo & Hernández, Adrián & Narazani, Edlira, 2026. "Escaping the inactivity trap? The work incentive of the Spanish minimum income," Journal of Policy Modeling, Elsevier, vol. 48(1), pages 107-129.
    • Handle: RePEc:eee:jpolmo:v:48:y:2026:i:1:p:107-129
    DOI: 10.1016/j.jpolmod.2025.09.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161893825001292
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpolmod.2025.09.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Maria Luisa Maitino & Marco Mariani & Valentina Patacchini & Letizia Ravagli & Nicola Sciclone, 2024. "The Employment Effects of the Italian Minimum Guaranteed Income Scheme Reddito di Cittadinanza," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 10(2), pages 649-681, July.
    2. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
    3. Lehmus, Markku, 2014. "Distributional and employment effects of labour tax changes in Finland," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 107-120.
    4. Xisco Oliver & Amedeo Spadaro, 2017. "Active Welfare State Policies and Labour Supply in Spain," Hacienda Pública Española / Review of Public Economics, IEF, vol. 222(3), pages 9-41, September.
    5. Luis Ayala & Milagros Paniagua, 2019. "The impact of tax benefits on female labor supply and income distribution in Spain," Review of Economics of the Household, Springer, vol. 17(3), pages 1025-1048, September.
    6. repec:bla:scandj:v:97:y:1995:i:4:p:635-59 is not listed on IDEAS
    7. Coda Moscarola, Flavia & Colombino, Ugo & Figari, Francesco & Locatelli, Marilena, 2020. "Shifting taxes away from labour enhances equity and fiscal efficiency," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 367-384.
    8. Vanda Almeida & Silvia De Poli & Adrián Hernández, 2025. "The Role of Minimum Income Schemes in Poverty Alleviation in the European Union," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(1), February.
    9. Gurgand, Marc & Margolis, David N., 2008. "Does work pay in France? Monetary incentives, hours constraints, and the guaranteed minimum income," Journal of Public Economics, Elsevier, vol. 92(7), pages 1669-1697, July.
    10. Heikki Palviainen, 2023. "Incentivizing last-resort social assistance clients: Evidence from a Finnish policy experiment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 1-19, February.
    11. Holguer Xavier Jara Tamayo & Alberto Tumino, 2021. "Atypical Work and Unemployment Protection in Europe," Journal of Common Market Studies, Wiley Blackwell, vol. 59(3), pages 535-555, May.
    12. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    13. Paulus, Alari & Peichl, Andreas, 2009. "Effects of flat tax reforms in Western Europe," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 620-636, September.
    14. Edlira Narazani & Ugo Colombino & Bianey Palma, 2023. "EUROLAB: A Multidimensional Labour Supply-Demand Model for EU Countries," International Journal of Microsimulation, International Microsimulation Association, vol. 16(3), pages 49-76.
    15. Gasior, Katrin & Jara, H. Xavier & Makovec, Mattia, 2024. "Assessing the effectiveness of social protection measures in mitigating COVID-19-related income shocks in the European union," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 583-605.
    16. CRUCES Hugo & HERNANDEZ Adrian & NARAZANI Edlira, 2024. "Overcoming the Inactivity Trap in Spain: The Work Incentive Reform of the Ingreso Mínimo Vital," JRC Working Papers on Taxation & Structural Reforms 2024-11, Joint Research Centre.
    17. Kyyrä, Tomi & Arranz, José M. & García-Serrano, Carlos, 2019. "Does subsidized part-time employment help unemployed workers to find full-time employment?," Labour Economics, Elsevier, vol. 56(C), pages 68-83.
    18. José Labeaga & Xisco Oliver & Amedeo Spadaro, 2008. "Discrete choice models of labour supply, behavioural microsimulation and the Spanish tax reforms," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(3), pages 247-273, September.
    19. Magnani, Riccardo & Piccoli, Luca, 2020. "Universal basic income with flat tax reform in France," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 235-249.
    20. Fuenmayor, Amadeo & Granell, Rafael & Savall, Teresa, 2024. "Labour supply responses to a negative income tax in Spain," Journal of Policy Modeling, Elsevier, vol. 46(6), pages 1274-1287.
    21. Inmaculada García-Mainar & José Alberto Molina & Víctor M. Montuenga, 2011. "Gender Differences in Childcare: Time Allocation in Five European Countries," Feminist Economics, Taylor & Francis Journals, vol. 17(1), pages 119-150, January.
    22. Eichhorst, Werner & Krause-Pilatus, Annabelle & Marx, Paul & Dolls, Mathias & Lay, Max, 2023. "Minimum Income Support Systems as Elements of Crisis Resilience in Europe," IZA Discussion Papers 16066, IZA Network @ LISER.
    23. Colombino Ugo & Narazani Edlira, 2013. "Designing a Universal Income Support Mechanism for Italy: An Exploratory Tour," Basic Income Studies, De Gruyter, vol. 8(1), pages 1-17, July.
    24. Colombino Ugo & Locatelli Marilena & Narazani Edlira & O'Donoghue Cathal, 2010. "Alternative Basic Income Mechanisms: An Evaluation Exercise With a Microeconometric Model," Basic Income Studies, De Gruyter, vol. 5(1), pages 1-31, September.
    25. Marike Knoef & Jan C. van Ours, 2016. "How to stimulate single mothers on welfare to find a job: evidence from a policy experiment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(4), pages 1025-1061, October.
    26. H. Xavier Jara & Alberto Tumino, 2013. "Tax-benefit systems, income distribution and work incentives in the European Union," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 27-62.
    27. Narazani, Edlira & Agúndez García, Ana & Christl, Michael & Figari, Francesco, 2025. "Increased childcare to promote mothers’ employment in selected EU countries," Journal of Policy Modeling, Elsevier, vol. 47(3), pages 492-511.
    28. Prifti, Ervin & Estruch, Elisenda & Daidone, Silvio & Davis, Benjamin, 2019. "How much is too much: Does the size of income support transfers affect labor supply?," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 179-196.
    29. Blázquez, Maite & Herrarte, Ainhoa & Sáez, Felipe, 2019. "Training and job search assistance programmes in Spain: The case of long-term unemployed," Journal of Policy Modeling, Elsevier, vol. 41(2), pages 316-335.
    30. Ugo Colombine, 2013. "A new equilibrium simulation procedure with discrete choice models," International Journal of Microsimulation, International Microsimulation Association, vol. 6(3), pages 25-49.
    31. Olivier Bargain & Andreas Peichl, 2016. "Own-wage labor supply elasticities: variation across time and estimation methods," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-31, December.
    32. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 1039-1073.
    33. NARAZANI Edlira & COLOMBINO Ugo, 2021. "Modelling sector-specific employment shocks with EUROLAB, a multidimensional behavioural model," JRC Working Papers on Taxation & Structural Reforms 2021-09, Joint Research Centre.
    34. Tine Hufkens & Tim Goedemé & Katrin Gasior & Chrysa Leventi & Kostas Manios & Olga Rastrigina & Pasquale Recchia & Holly Sutherland & Natascha Van Mechelen & Gerlinde Verbist, 2019. "The Hypothetical Household Tool (HHoT) in EUROMOD: a new instrument for comparative research on tax-benefit policies in Europe," International Journal of Microsimulation, International Microsimulation Association, vol. 12(3), pages 68-85.
    35. Michael Christl & Silvia Poli, 2021. "Trapped in inactivity? Social assistance and labour supply in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 661-696, August.
    36. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    37. Bargain, Olivier & Orsini, Kristian, 2006. "In-work policies in Europe: Killing two birds with one stone?," Labour Economics, Elsevier, vol. 13(6), pages 667-697, December.
    38. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2014. "Comparing Labor Supply Elasticities in Europe and the United States: New Results," Journal of Human Resources, University of Wisconsin Press, vol. 49(3), pages 723-838.
    39. Sara Rica & Lucía Gorjón, 2019. "Assessing the impact of a minimum income scheme: the Basque Country case," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 251-280, November.
    40. Bargain, Olivier & Doorley, Karina, 2011. "Caught in the trap? Welfare's disincentive and the labor supply of single men," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1096-1110, October.
    41. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
    42. McFadden, Daniel, 1974. "The measurement of urban travel demand," Journal of Public Economics, Elsevier, vol. 3(4), pages 303-328, November.
    43. Mauro Mastrogiacomo & Nicole M. Bosch & Miriam D. A. C. Gielen & Egbert L. W. Jongen, 2017. "Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 769-796, October.
    44. Juan J. Dolado & Florentino Felgueroso & Juan F. Jimeno, 2021. "Past, present and future of the Spanish labour market: when the pandemic meets the megatrends," Applied Economic Analysis, Emerald Group Publishing Limited, vol. 29(85), pages 21-41, January.
    45. Mr. David Coady & Samir Jahan & Baoping Shang & Riki Matsumoto, 2021. "Guaranteed Minimum Income Schemes in Europe: Landscape and Design," IMF Working Papers 2021/179, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. CRUCES Hugo & HERNANDEZ Adrian & NARAZANI Edlira, 2024. "Overcoming the Inactivity Trap in Spain: The Work Incentive Reform of the Ingreso Mínimo Vital," JRC Working Papers on Taxation & Structural Reforms 2024-11, Joint Research Centre.
    2. Narazani, Edlira & Agúndez García, Ana & Christl, Michael & Figari, Francesco, 2025. "Increased childcare to promote mothers’ employment in selected EU countries," Journal of Policy Modeling, Elsevier, vol. 47(3), pages 492-511.
    3. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    4. Rolf Aaberge & Ugo Colombino, 2018. "Structural Labour Supply Models and Microsimulation," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 162-197.
    5. Michael Christl & Silvia Poli, 2021. "Trapped in inactivity? Social assistance and labour supply in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 661-696, August.
    6. Ugo Colombino & Nizamul Islam, 2025. "Lost jobs, new jobs and optimal tax-transfer reforms," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 64(4), pages 765-818, June.
    7. Luis Ayala & Milagros Paniagua, 2019. "The impact of tax benefits on female labor supply and income distribution in Spain," Review of Economics of the Household, Springer, vol. 17(3), pages 1025-1048, September.
    8. Coda Moscarola, Flavia & Colombino, Ugo & Figari, Francesco & Locatelli, Marilena, 2020. "Shifting taxes away from labour enhances equity and fiscal efficiency," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 367-384.
    9. Bart Capéau & André Decoster & Stijn Van Houtven, 2024. "Piecemeal Modeling of the Effects of Joint Direct and Indirect Tax Reforms," Public Finance Review, , vol. 52(1), pages 111-149, January.
    10. Fuenmayor, Amadeo & Granell, Rafael & Savall, Teresa, 2024. "Labour supply responses to a negative income tax in Spain," Journal of Policy Modeling, Elsevier, vol. 46(6), pages 1274-1287.
    11. Lara, Francisco & Oliver, Xisco, 2026. "Basic income reduces poverty and inequality: Are there costs in terms of efficiency?," Journal of Policy Modeling, Elsevier, vol. 48(1), pages 23-42.
    12. Islam, Nizamul & Colombino, Ugo, 2018. "The case for NIT+FT in Europe. An empirical optimal taxation exercise," Economic Modelling, Elsevier, vol. 75(C), pages 38-69.
    13. Mauro Mastrogiacomo & Nicole M. Bosch & Miriam D. A. C. Gielen & Egbert L. W. Jongen, 2017. "Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 769-796, October.
    14. M. Fort & N. Schneeweis & R. Winter-Ebmer, 2011. "More Schooling, More Children: Compulsory Schooling Reforms and Fertility in Europe," Working Papers wp787, Dipartimento Scienze Economiche, Universita' di Bologna.
    15. de Boer, Henk-Wim & Jongen, Egbert L.W. & Kabatek, Jan, 2022. "The effectiveness of fiscal stimuli for working parents," Labour Economics, Elsevier, vol. 76(C).
    16. Michael Christl & Silvia De Poli & Janos Varga, 2022. "Reducing the income tax burden for households with children: an assessment of the child tax credit reform in Austria," Fiscal Studies, John Wiley & Sons, vol. 43(2), pages 151-177, June.
    17. Ranđelović Saša & Žarković Rakić Jelena & Vladisavljević Marko & Vujić Sunčica, 2019. "Labour Supply and Inequality Effects of In-Work Benefits: Evidence from Serbia," Naše gospodarstvo/Our economy, Sciendo, vol. 65(3), pages 1-22, September.
    18. Ugo Colombino & Nizamul Islam, 2020. "Combining microsimulation and optimization to identify optimal flexible tax-transfer rule," CHILD Working Papers Series 86 JEL Classification: H2, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    19. Dieter Vandelannoote & Gerlinde Verbist, 2016. "The design of in-work benefits: how to boost employment and combat poverty in Belgium," ImPRovE Working Papers 16/15, Herman Deleeck Centre for Social Policy, University of Antwerp.
    20. Rolf Aaberge & Ugo Colombino, 2011. "Empirical Optimal Income Taxation: A Microeconometric Application to Norway," CHILD Working Papers wp16_11, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jpolmo:v:48:y:2026:i:1:p:107-129. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.