**The first policy scenario involves modifying the MSA program, explicitly increasing the value of the income thresholds consistent with the reform, assuming the same take-up rate as in the pre-reform scenario.** The MSA income threshold was raised from the existing 38 monthly euros (equivalent to 456 euros annually) to a new threshold, which was set at 30% of the at-risk-of-poverty (AROP) poverty line for the year 2020, amounting to an annual income of 928 euros. This change represented a substantial increase in the differentiated minimum income of the family compared to the baseline. Under this scenario, the take-up under the policy reform is the same as the one estimated for the baseline.

**The second policy scenario involves the same policy change but with an assumption of a 100% take-up rate.** This scenario aims to estimate the maximum potential impact of the MSA reform. Additionally, both scenarios incorporated the effect of adjusting the Differentiated Minimum Income for Heating (DMIH), a related social assistance program. The DMIH uses the MSA as one of its parameters to determine eligibility for a monthly benefit. Specifically, households with incomes below the DMIH threshold were eligible for a monthly heating allowance of 74.83 Bulgarian leva (BGN) during the heating season. The monthly value of the heating allowance for 2022/2023 was increased to 109.39 BGN. These simulations focused on expanding the coverage of households eligible for the DMIH while keeping the monthly benefit amount unchanged.

**These two scenarios provide insights into how different policy changes, such as increasing base value or improving take-up rates, might impact social assistance programs' performance and effectiveness in alleviating poverty and reducing inequality in Bulgaria** . It allows policymakers to assess the potential outcomes of these changes and make informed decisions regarding the design and implementation of social policies.

_Policy Scenario 1: GMI increase and constant take-up._

**In this policy scenario, we undertake a simulation consistent with the reform of the Monthly Social Allowance (MSA) program.** This implies an increase in the GMI base from its previous value of 75 Bulgarian Leva (BGN) to 30% of the at-risk-of-poverty (AROP) poverty line. This adjustment assumes that the estimated take-up rate from survey data remains constant. This scenario is not limited to the MSA alone. It also considers its interaction with the heating allowance, which is instrumental in addressing seasonal affordability challenges, particularly those related to heating expenses. With the higher threshold, more households would now meet the criteria to access these benefits, based on data from the 2021 Survey on Income and Living Conditions (SILC). We assumed that the take-up rates would remain consistent with our earlier estimates of 56% for MSA and 99% for the heating allowance.

**Under this government reform, the increase in the MSA's base value results in a tangible expansion of its coverage.** This coverage now extends up to the second decile, encompassing a more significant proportion of the population in need (Figure 9, panel a). Additionally, the financial support provided through these programs witnessed a notable uptick. According to our estimates, the number of households benefiting from these schemes would rise from 24,000 to 84,000, and the total benefits disbursed would increase substantially, reaching nearly BGN 230 million.

**However, it is important to note that while these adjustments notably impact the number of beneficiaries and the total resources allocated, the effects on poverty and income inequality remain modest** . The primary influence is seen in a more pronounced reduction in the poverty gap, highlighting the challenges of crafting policies that meaningfully alleviate poverty and reduce inequality (Figure 9, panel d). This scenario demonstrates the intricate balance between increasing program coverage and

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