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Table 12. Producer support equivalents and their components

Table 12. Producer support equivalents and their components

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OECD Economic Surveys: Luxembourg


the 2003 Common Agricultural Policy reform for Sustainable Agriculture it was

decided partially to end supporting products in favour of supporting producers,

with the introduction of a partially or fully decoupled system of payments per

farm.90 Even with an unchanged envelope of total aid to agriculture, such a

programme would improve the allocation of resources while improving the

efficiency of income transfers.91 Such an orientation offers the possibility of

targeting the transfers to less well off farmers or to smaller units (OECD, 2003f).

The Luxembourg authorities have managed to move domestic support measures

for agriculture to less trade-distorting measures.

The Luxembourg authorities are increasing development co-operation further and implementing measures to address shortcomings identified in past policy.

The central commitment is to increase the amount of resources directed to development co-operation to 1 per cent of GNI by the end of the current legislative period.

Policymakers have recognised that assistance was too widely dispersed in the past

and have made efforts to concentrate resources by country and sector. To this end,

bilateral assistance to ten “target” countries increased from 42 per cent to 55 per

cent of total bilateral assistance between 1995 and 2000. Overall, the number of

countries receiving assistance declined from 90 to 68 in the second half of the 1990s.

As Luxembourg has concentrated assistance, it has also ensured that the withdrawal

of aid is not abrupt. In Namibia, which is a middle-income country, for example, this

has included an innovative approach of matching local commitments to development projects during the transition. The concentration by sector has been striking.

Social infrastructures and services doubled in importance during the second half of

the 1990s and now account for 82 per cent of bilateral assistance. While policy has

increasingly targeted projects in the sectors of education, health, sanitation and

rural development, Luxembourg has recently incorporated environment and gender

equality as cross-cutting themes.

The Luxembourg authorities have recently begun to put in place systems

to ensure greater effectiveness of development co-operation. This includes

moving from stand-alone projects to better-integrated projects. In this process a

number of indicative development frameworks have been agreed with recipient

partner governments in target countries. The principal advantages offered by this

approach are in ensuring coherence with target country programmes and enhancing synergies with other donors’ programmes. Greater efforts are also being made

in the evaluation of project plans and monitoring outcomes as well as increasing

resources in regional offices, which can take greater responsibility for project

implementation, policy dialogue and co-ordination.


Although Luxembourg’s direct trade relations with the least developed

countries are small, the authorities have supported further progress in multilateral

© OECD 2003

Policies to strengthen growth in national income


trade liberalisation as a means of promoting development. The openness of

Luxembourg to products from developing countries depends essentially on

measures agreed at the EU level. The EU’s Everything-But-Arms programme, that

exempts least-developed countries from tariffs and quotas, is a welcome step

even if some of the gains will be from trade diversion. For other developing

countries, agricultural products still face barriers. There is an intention to continue

reforming the EU system of agricultural support by moving to policies that focus

on farm income rather than impacting on market prices. The Luxembourg

authorities have made their own domestic agricultural support less trade distorting and further moves in this direction would be warranted. The authorities have

made a considerable effort in the realm of development co-operation. However,

as the amount of assistance is relatively small, it is important to limit disbursements tightly to the target countries and a limited number of programme areas.

The movement to integrated projects should be continued with better appraisal

of projects and within an enhanced monitoring and evaluation framework.

Follow up on OECD recommendations for structural reform

Progress in structural reform made since the last Survey is summarised in

Box 5.

© OECD 2003

OECD Economic Surveys: Luxembourg


Box 5.

Follow up on OECD recommendations for structural reform

since 2001


Actions since the last Survey


Labour markets

1. Reform early retirement and disability pensions

Enhance incentives

for older workers

to continue working by

lowering replacement

rates, making benefits

an actuarially neutral

function of the

retirement age

and by increasing the

official retirement age.

Evaluate the effect

of the new law on

disability pensions as

soon as possible and

take further measures

if the number of

disability pensioners

has not declined


The 2002 law on disability

and redeployment of

workers with reduced

capacity has restricted

access to disability

pension by requiring an

additional independent

medical exam. Persons

with residual capacity to

work are redeployed

within their company or

with another employer,

helped by the placement

agency. A “waiting

allowance” is paid after

one year if all

redeployment efforts fail

(same amount as regular

disability pension).

The effect of the 2002 law on the

number of first claims, the rate of

denial of regular invalidity pensions

and the number of long-term

unemployed with reduced capacity

should be closely monitored.

The government should reduce the

generous replacement rates of the

invalidity pension and the waiting

allowance and make the medical

criteria for access tougher.

To reduce incentives for early

retirement, the disability pension

reform should be complemented by a

reduction in early retirement pension

(pension de vieillesse anticipée) on an

actuarial basis in relation to a pension

taken at the official retirement age. In

addition, the ease with which imputed

years of contributions can be obtained

should be reduced. Public subsidies

for the pre-retirement pension (for

workers laid off in restructuring

industries) should also be terminated.

2. Reform unemployment and related benefit schemes and enhance active labour market policies

Reduce the withdrawal

rate of benefits for

additional earnings

under the general

assistance scheme

(RMG), including

housing assistance.

No action taken.

The recommendation is maintained.

Encourage people on

the RMG to come back

to work progressively

by working part time.

No action taken.

The recommendation is maintained.

© OECD 2003

Policies to strengthen growth in national income

Box 5.


Follow up on OECD recommendations for structural reform

since 2001 (cont.)


Actions since the last Survey

Improve orientation,

training and follow-up

of unemployed


As unemployment rose

in 2001 and 2002, so did

the number of persons

No further expansion of active labour

directed to training and

market policies (ALMP) is needed as

activation measures that

placement perspectives are limited

concern all persons after

by the number of vacancies. The

six months of benefits.

government should reduce the need

Placement rates of

for active labour market policies by

participants were high

relying on stronger financial

thanks to frequent

incentives for the unemployed, i.e.

contacts with placement

by reducing the very generous

services and measures

replacement rate. This would leave

being tailored to the need

more resources for ALMP in favour of

of firms which are closely

specific groups such as older

involved in the

workers, persons with reduced

organisation of training

capacity, RMG beneficiaries and

workshops and

persons wishing to return to the

recruitment workshops.

labour market after long absences.

3. Increase employment flexibility

Remove the remaining No action taken.

rigidities that dissuade

employers from

offering part-time jobs.

Relax regulations on

No action taken.



Make rules on

A bill is currently before

dismissals and the use Parliament to make the

of fixed-term contracts law on collective

less strict.

redundancies stricter.

4. Increase wage and labour cost flexibility

No action taken.

Improve flexibility

in wage bargaining by

allowing for lower

wages for older

workers, to enable

them to remain

employed despite a

decline in productivity.

Modify wage

indexation to exclude

energy from the index.

© OECD 2003


The recommendation is maintained.

The recommendation is maintained.

Employment protection regulation

should be eased, not increased as

proposed in the Bill before Parliament.

Procedures for terminating

employment contracts in SMEs should

be simplified to reduce legal costs.

The recommendation is maintained.

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Table 12. Producer support equivalents and their components

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