Horizontal and Vertical Equity Objectives of Child Benefit Systems: An Empirical Assessment for European Countries

Abstract

A large body of research has demonstrated that child benefit systems are of paramount importance in reducing child poverty, thus having an important vertical equity component. Although all child benefit systems embody in one way or the other such vertical equity objective, the primary objective of child benefit systems is to (at least partly) compensate for the costs associated with childrearing and to minimize the welfare loss relative to childless families, a horizontal equity objective. Most studies are concerned with vertical equity and child poverty reduction; here we also explicitly take the dimension of horizontal equity into account. In this paper, we propose and develop a two-dimensional framework for evaluating and classifying the outcomes of child benefit systems in terms of both vertical and horizontal equity. Treating these two objectives as analytically distinct permits the construction of a synthetic index of child benefit outcomes and allows for the explicit incorporation of a value judgement about the most important objective of child benefit systems. In doing so, we propose a novel measure for gauging horizontal equity based on the cost of children implicit in commonly used equivalence scales drawing on the public finance literature. We demonstrate the potential of our evaluative framework for policy purposes by means of an empirical application for 31 European welfare states. We contribute to the literature by highlighting the role of characteristics of benefit systems in achieving certain objectives regarding horizontal and/or vertical equity.Keywords Child benefit systems Á Horizontal equity Á Vertical equity Á Cost of children Á Child poverty Electronic supplementary material The online version of this article (

Social Transfers and Child Poverty in European Countries: Pro-poor Targeting or Pro-child Targeting?

“…Thus, it should be stressed that, apart from the traditional justification of compensating for the costs associated with childrearing and minimising the welfare loss relative to childless families, pro-child targeting plays a significant role in reducing poverty in European countries, considering that horizontal equity and vertical equity are inherently interrelated. This is consistent with Verbist and Van Lancker (2016), who find that European countries that succeed in compensating for a high share of the costs of childrearing for all families largely tend to succeed in reducing the poverty gap as well. We argue that the reason why transfers targeted at children reduce child poverty more than transfers targeted at low incomes is related to the fact that children are largely located in the lower part of the income distribution and, at the same time, in the lower deciles there is a significant prevalence of childless families that are potential beneficiaries of pro-poor targeting.…”

“…The distributive impact of pro-child targeting partly depends on the socio-demographic structure of society because children are not randomly distributed over the population and, for instance, they can be over-represented in low-income households. This is, for European countries, in line with Verbist and Van Lancker (2016), who argue that horizontal equity and vertical equity are inherently interrelated.…”

“…To this end, beyond the size of social transfers, we consider two input indicators: pro-poor targeting (the ratio of expenditure on means-tested transfers over expenditure on total transfers) and pro-child targeting (the share of social protection expenditure specifically targeted at family/children). While pro-poor targeting is related to a vertical equity objective – ‘unequal treatment of unequals’ – pro-child targeting refers to a horizontal equity objective – ‘equal treatment of equals’ – (Verbist and Van Lancker, 2016).…”

To what extent do welfare states compensate for the cost of children? The joint impact of taxes, benefits and public goods and services

“…The question of this article is whether these welfare state efforts are sufficient to compensate for the cost of children, and in particular for vulnerable households. According to Verbist and Van Lancker (2016), child benefit systems show a strong correlation between vertical and horizontal equity objectives: countries that succeed in minimising the welfare loss of childrearing tend to succeed in a larger child poverty reduction as well. This is related to the fact that children are overrepresented in low-income families, which implies that child benefits, not only through the logic of targeting but also by default tend to lead to vertical redistribution.…”

Microsimulation of Child Benefits: A Review of Studies

“…Before the development of AMMs, child benefits were often analysed using data taken directly from household income surveys (HISs), and this remains a common approach; for example, see Verbist & Van Lancker (2016). AMMs offer the following two main advantages: (a) they enable a more comprehensive and precise estimation of the child benefit incidence, and (b) they can simulate various alternative policy scenarios, which helps both to increase our familiarity with the existing system of child benefits and to reveal the possible effects of reforms.…”