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

Abstract

In order to alleviate child poverty, contemporary European welfare states have shifted their focus increasingly towards child-centred investment strategies. However, studies examining the generosity of welfare states to families with children focus mainly on cash benefit packages, or on government expenditure, while not taking into account the actual out-of-pocket costs families have to make to fulfil their needs. This article aims at contributing to existing studies by: (1) empirically assessing the needs and costs of children across welfare states by making use of cross-nationally comparable reference budgets, while taking into account publicly provided or subsidised services; (2) simulating the cash benefits and taxes that affect households with children through the tax–benefit system, by making use of the new Hypothetical Household Tool (HHoT) in EUROMOD; and (3) combining both types of information in order to compare the essential out-of-pocket costs for children between 6 and 18 years old with the simulated cash benefit packages. We propose a new indicator that can be used to assess welfare state generosity to families with children: the child cost compensation indicator. The use of the indicator is empirically illustrated by comparing six European welfare states: Belgium, Finland, Greece, Hungary, Italy and Spain. The article shows that, even though with important cross-national variation, cash transfers generally amount to less than 60 percent of the cost of children. Although in five out of six countries support for families is higher at the lower end of the income distribution, for households living on a low gross wage, the income of a family with children is less adequate compared to a similar childless family and is in many cases insufficient to participate adequately in society.

Living wages in Portugal: In search of dignity in a polarised labour market

“…The adequacy of the national minimum wage is higher for the households with no children (78.9% for single persons and 94.5% for couple with no children) when compared with the households with children: less than 50% for single parents and close to 70%, or less, for couples with children, decreasing with the number of children. This reflects a very low level of children costs compensation in Portuguese welfare state, a result observed in other European welfare states (Penne et al, 2019).…”

The Hypothetical Household Tool (HHoT) in EUROMOD: a new instrument for comparative research on tax-benefit policies in Europe

“…It can also illustrate how proposed policy reforms and reform ideas would work and interact with other policies. Second, it can help users to create (new) policy indicators that keep the composition of the population constant across time and countries, for instance on benefit adequacy and generosity, targeting, implicit equivalence scales and work incentives (for an example of a new indicator, see Penne et al (2020)). Thirdly, HHoT can be used to go beyond the possibilities of the microdata to study the operation and impact of policy parameters for which variables are lacking in the microdata or in cases where specific households are underrepresented in the microdata.…”

The magnitude and direction of changes in age-specific at-risk-of-poverty rates: an analysis of patterns of poverty trends in Europe in the mid-2010s

“…Generally speaking, families with and without children are not equally well off in terms of the disposable income that is needed for adequate social participation (Penne et al, 2020). This ties in with the important role of social transfers in tackling both child (Bárcena-Martin, Blanco-Arana, & Perez-Moreno, 2018) and single mother poverty (Van Lancker, Ghysels, & Cantillon, 2015).…”