1945

Abstract

We compare three EU countries that have recently experienced substantial but very different reforms of their systems to support families with children: Austria, Spain and the United Kingdom. The structure of these systems is different: Austria gives emphasis to universal benefits, Spain to tax concessions and the United Kingdom to means-tested benefits. As a first step the paper compares the distributional implications of these three approaches. The recent reforms have reinforced these existing structures while increasing the amount of public resources directed towards children. The second step is to address the question whether the chosen strategies are the best for each country. What would have happened if instead of reinforcing the existing types of policies these countries had completely transformed the architecture of their systems in either of the other two directions? We use EUROMOD - the European tax-benefit microsimulation model that is designed for making cross-country comparisons and for answering ‘what if’ questions such as these – to explore the effects of alternative budget-neutral reforms. In particular, in addition to assessing the effects of countries’ actual child related reforms from 1998 to 2003, we simulate the substitution (‘swap’) of child related benefits and tax concessions from one country to another. The changes in household disposable income resulting from these reforms are used to assess their impact on the position of children in the income distribution as a whole, the proportions gaining and losing and the effects on child poverty. The analysis of the 1998 and 2003 systems reveal that, in real terms, the average spending per child increased by 31 per cent in Austria (from €169 to €220 per month), 150 per cent in Spain (from €13 to €34), and 71 per cent in the UK (€102 to €174). In Austria and the UK the increase in spending per child is relatively evenly spread over the income distribution, with a slightly lower increase at the top. In Spain the rise in per child spending in the two bottom deciles is negligible, whereas children in the top quintile receive on average more than ten times as much under the 2003 rules as under the 1998 rules. Child poverty rates fall in all countries, but the reductions are particularly significant in the UK (from 32% to 20%) and Austria (12% to 9%). The swap of 2003 child policies allows us to draw some conclusions about the three systems regardless of the country in which they are implemented. On vertical equity grounds, UK policies are the most successful at reducing child poverty in all three countries and using a range of proportions of the median as poverty thresholds. In terms of horizontal equity, the Austrian system generates the highest redistribution from childless individuals to families with children and guarantees, in all countries, the right to a similar level of protection for all children regardless their parent’s income position. On the other hand, with a low expenditure level and a pro-rich distribution, the Spanish policies can hardly meet any equity objective. While there are some important aspects that have not been considered in this study, for example the effect of the alternative systems on parental work incentives and on benefit take-up rates, and the role of in-kind benefits, this study demonstrates the potential of comparing systems of support by ‘swapping’ them between countries. This method using microsimulation allows us to distinguish between the effects of level of spending, the relative importance of policy structure and design, and the differential impacts of policies in particular national contexts.

Sustainable Development Goals:
Related Subject(s): Children and Youth
Countries: Austria ; Spain ; United Kingdom

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http://instance.metastore.ingenta.com/content/papers/25206796/7
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  • Published online: 31 Aug 2005
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