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6 Conclusions

This paper has presented a social accounting framework designed to examine benefit flows in New Zealand. Quarterly entry, transition and exit rates for 47 benefit types were obtained using average values observed for a number of years before and after the global financial crisis. Simulations over time of the numbers of individuals in receipt of a range of benefits were obtained under alternative assumptions about the recovery from the financial crisis.

One advantage of the approach presented here is that the dynamics and complexities of benefit flows can be investigated in detail. The approach recognises that a change is imposed on a dynamic system that is not in equilibrium. Existing stocks need to 'work their way' through the revised structure, of which just a small number of transition rates are affected by any policy change. The final effect on the number of benefit recipients are not apparent immediately, but may take some time to settle down. In the medium term of three or four years, the stocks can be substantially affected by the economic conditions at the time of the change, and the assumed conditions over the projection period (even when the equilibrium stocks are expected to be the same - as with the three most optimistic counterfactual cases considered above).

The dynamics of adjustments to revised inflow and exit rates, consequent on policy changes, mean that the ex post evaluation of policy initiatives is far from straightforward. The speed and indeed the direction of adjustments to benefit numbers depend on a vast range of flows, not only those flows which are targeted by a policy change. Furthermore, it may in some cases appear that a reform has little or no effect, if the numbers in receipt of a benefit a year or so after the reform are only slightly below those when the reform was enacted. However, the need to consider the numbers in relation to a well-specified counterfactual, not the stock at the time of implementation, is paramount. If the counterfactual suggests that the numbers would increase substantially without a policy change, a policy change which involves only a slight increase, from the time of implementation, might wrongly be judged a failure. Alternatively, and perhaps even more worryingly, a policy change which results in beneficiary stocks that are only slightly below or similar to the counterfactual, which itself implies a large fall in the absence of any intervention, may wrongly be judged to have been successful.

It is suggested that the approach examined here can provide a useful tool for the analysis of alternative policies and exogenous changes in the economy which are expected (or designed) to lead to changes in the pattern of transitions into and among different benefit categories.

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