We analyze the social protection policy response to COVID-19 and its impact on household incomes in Uruguay during 2020 and 2021, based on static microsimulation methods. Since the onset of the crisis, the Uruguayan government implemented adjustments to social protection existing policies, as well as a new transfer and an emergency tax. The configuration of pre-crisis social protection facilitated the setting up of rapid support for vulnerable population and formal workers. The responses adopted by the Uruguayan government were the increase in the amount of the existing cash transfers, the inception of a new cash transfer program to reach informal workers, and the simplification of the requirements for the unemployment insurance benefit. On the tax side, a temporary income tax (COVID-19 Emergency Tax) for public workers (excluding health workers) and pensioners receiving an income above a certain threshold was implemented during two months in 2020 and two months in 2021. Our results indicate that the modifications in the social protection system introduced to face COVID-19 allowed for a reduction in the incidence of poverty of 1.3 and 1.6 percentual points in 2020 and 2021 respectively. The effects were bigger among households with children: if no modifications had been undertaken in social protection as a response to COVID-19, poverty would have been 1.8 or 2.4 percentual points higher for these households in 2020 and 2021 respectively. The most important instrument was the unemployment insurance in 2020 and the conditional cash transfer directed towards households with children in 2021. Taken together, the modifications to the social protection system originated in the COVID crisis prevented the Gini Index from increasing in 0.6/0.7 additional percentual points.
