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How to calculate earn-back effects ?

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In this chapter, we focus on the calculation of the earn-back effects, as the gross budgetary cost of a measure depends on the type of subsidy and it is easier to calculate for a Member State.

The earn-back effects depend on the effects that are obtained through the measure. The table below explains in a simplified way how the different earn-back effects should be calculated, depending on the effects that have been obtained.

Effect obtained Type of earn-back effect Way to calculate the earn-back effect Points for attention
Increased incomes
The creation of (direct and indirect) employment/ Reducing undeclared work Net increase in social contributions Number of new jobs created (direct and indirect) * average wage * average social contributions
  • Take into account possible reductions in social contributions through the employment of low-skilled workers
Net increase in personal income tax Number of new jobs created (direct and indirect) * average wage * average personal income tax
  • Take into account possible reductions in social contributions for the employment of low-skilled workers
Net increase in VAT revenue Average VAT * consumption rate * average income of new workers – average unemployment benefits
  • This applies only for all workers that were unemployed before
The creation of new companies Net increase in companies’ taxes Number of new companies created * average benefits * average company taxes
  • This applies only for all new companies created not for companies already existing before the introduction of the measure (substitution effect)
Better work-life balance Net increase in income tax owing to users entering/returning to employment Average income tax * total income from additional hours of work as a result of PHS
  • This applies only for users that did not use PHS in the irregular market before
Avoided costs
The creation of (direct and indirect) employment/ Reducing undeclared work Savings in unemployment benefits Number of new jobs created (direct and indirect) * average unemployment benefit
  • This applies only for all new jobs created, not for jobs that already existed before the introduction of the measure (substitution effect)
Care for a dependent or disabled person Avoided rest home costs Number of elderly that stay longer at home * average cost for rest homes
  • Difficulty with estimating the number of elderly that stay longer at home
Avoided health costs/medical expenses Identification of avoided public medical expenses as a result of care
  • Difficulty with estimating avoided expenses, as it is difficult to disentangle the effects of care on the health of users
Avoided nursery costs Number of children * average cost of a nursery
Avoided cost of school failure Number of students that avoided school failure * average cost of failure
  • Difficulty with estimating the number of students that avoided school failure

Next: Policy pointers – Step 7

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