Research Paper Social Situation Observatory Research Notes 2/2007
Supporting families with children through taxes and benefits
30 Jun 2007
Families with children receive significant support from government. This is mainly to reduce the risk of child poverty and assist parents with childcare responsibilities to balance jobs and family life. There is a great variety of measures to support families and these have been used to differing extents across the EU. This policy brief focuses on the support given to families with children through tax-benefit
All EU Member States provide some forms of support for children, typically in the shape of universal cash benefits, usually not taxed and increasing with the number of children in the household. Childrelated tax concessions are generally complements to cash benefits and vice versa. Many measures are related to income, except in the Nordic countries, and some to the employment status of parents.
The support provided, estimated by using the EUROMOD micro-simulation model, varies between EU-15 countries (the new Member States are not so far covered by the model). In most countries, the support for children through child contingent payments (those dependent on the presence of children) is significant. But benefits paid for other reasons and which are not related to children as such (‘nonchild contingent’) also effectively provide support and in some countries are even more important.
Child contingent support mostly consists of family benefits but also social assistance, including housing benefits. There is additional support through tax concessions in 9 countries but generally at a low level. Non-child contingent benefits vary considerably in terms of the form they take, being mostly
old-age pension in Southern European countries and unemployment benefits and social assistance in others.
The way child-related support is channelled has an important effect on its distribution between households. Tax concessions tend to go more to better off families or provide flat-rate support to households with different income levels. In principle, shifting support from taxes to benefits, therefore, would have the effect of redistributing income to the poorest children, especially if the benefits are
means-tested, without any additional budget cost. On the other hand, tax concessions tend to involve less distortion in terms of work incentives and have fewer problems of non take-up.
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