CHILD POVERTY AND CHILD RELATED POLICIES: A COMPARISON OF ROMANIA AND CZECH

REPUBLIC

Silvia Avram*, Eva Militaru**, Silvia Cojanu**, Cristina Stroe**

*National Research Institute for Labour and Social Protection, Bucharest**ISER, University of Essex

2013 EUROMOD Research WorkshopLisbon, Portugal2-3 October 2013

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Outline

oMotivation & aim

oMethodology

o ResultsEffects on poverty and income distribution

o Conclusions

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Motivation & aim• Why focusing on child poverty in Romania?

• More than 30% of the children were at risk of poverty in Romania during the last 5 years (EU27 average= approx. 20%).

• Can child poverty in Romania be reduced by changing the child related policies?

.• What would be the effects of implementing the Romanian child related

benefits in the Czech Republic?

• Our paper focuses on the effectiveness of the Romanian family policy system in reducing child poverty and attempts to establish the extent to which policy design itself, size of the benefits and/or the interaction between policies contribute to poverty reduction in Romania.

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Child povertyRomania, Czech Republic, EU

Source: Eurostat, At-risk-of-poverty rate (60% pov.line)

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At-risk-of-poverty rate, by household type(poverty line at 60% of median equiv. income after social transfers)

Source: Eurostat, 2011

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Methodology (I)• comparative framework, ‘swap’ the system of child support between Romania

and the Czech Republic

• compare the effects of implementing the Czech child related policies in Romania and the vice versa

• we evaluate poverty and income distribution effects (overall and separately for family types), before and after the implementation of the swapping scenario

• 3 non-contributory family benefits in each country and 1 tax element related to children

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Methodology (II)• re-scale monetary parameters (i.e. income thresholds, benefit amounts, etc.)

with respect to the poverty line in each country

• poverty lines and quintiles are fixed at the values of the original system

• change definitions and tax units accordingly

• add two swap systems, one for both tax and benefits and one for benefits only

• capture the interactions between the redistributive effect of these child-related policies and the broader tax-benefit system

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Child support systems

  Income test

Family size Number of children

Child age Single parent

ROMANIA

State allowance for children no no yes yes no

Means tested family allowance yes yes yes no yes

Allowance for new-born children no no yes yes no

Tax allowance for dependent persons yes no yes no no

CZECH REPUBLIC

Child allowance yes no yes yes no

Social allowance yes yes yes yes yes

Birth grant no no yes yes no

Refundable child tax credit yes no yes no no

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Scenarios

 No benefit

system

2007 baseline (Original system)

CZ Swap system

(benefits)

CZ Swap system

(benefits+tax)

RO Swap system

(benefits)

RO Swap system

(benefits+tax)

ROMANIA            State allowance for children   x     x xMeans tested family allowance   x     x xAllowance for newborn children   x     x x

Tax allowance for dependent persons   x x     xOther tax-benefit elements x x x x    CZECH REPUBLIC            Child allowance   x x x    Social allowance   x x x    Birth grant   x x x    Refundable child tax credit   x   x x  Other tax-benefit elements x x     x x

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Data • 2007 tax-benefit systems, Ro and Cz

• EU-SILC (and national SILC for CZ) 2008 with 2007 income

• we use EUROMOD tax-benefit microsimulation model, version F6.36

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Poverty reduction effects (CZ system in RO)• RO original system is more effective in reducing relative poverty than borrowed policies, for all groups with the exception of

single parent families (possibly due to the CZ social allowance treating lone parents on more generous terms)• RO policies are most effective for families with young children (very generous benefits for children under 2)• when using the 40% threshold, we see that CZ policies are more focused on the very poor• RO policies seem to be better at targeting those who are close to the 60% poverty line• Swapping both taxes and benefits yields to better results compared to swapping benefits alone

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Poverty reduction effects (CZ system in RO)• Better performance of CZ policies in reducing the poverty gap, compared to the poverty rate; CZ policies are more

likely targeted at the very bottom of the distribution, but are not actually lifting the poor above the poverty line• RO policies are more effective in reducing the poverty gap for families with young children and families with 1 or 2

children

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Poverty reduction effects (RO system in CZ)

• RO child related benefits are more effective in reducing poverty (both at 60% and 40% thresholds), compared to the original CZ system

• Better results when swapping benefits only

• RO tax allowance related to children is less effective in reducing poverty, compared to the CZ refundable child tax credit

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Poverty reduction effects (RO system in CZ)• RO benefit system (related to children) seems to be better than the CZ original system at filling in the poverty gap and

bringing the poor closer to the poverty line (both at 40% and 60% level)• Both CZ and RO systems are most ineffective in reducing the poverty gap for single parent families

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Income distribution effects (CZ system in RO)• CZ policies are more targeted towards the very bottom of the income distribution, compared to the RO ones, overall and

for families with children on the whole • for the rest of the income distribution, RO original seems to perform better• however, the changes in the average HDI are less pronounced at the middle and top of the income distribution• CZ tax system (the refundable child tax credit) is effective in providing some poverty relief

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Income distribution effects (CZ system in RO)• RO child-related policies perform better for families with young children (under 2) than the CZ system, especially for the

middle of the income distribution• CZ policies are more effective for single parent families at the very bottom of the distribution

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Income distribution effects (CZ system in RO)• CZ child related policies are very effective for large families (3+ children) with very low incomes • less income effect for both CZ and RO policies for families with 1 or 2 children

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Income distribution effects (RO system in CZ)• RO child related tax advantage (tax allowance) is not effective in compensating the income of the poor• Ro benefit system is more effective in the Czech Republic, compared to the CZ original system

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Progressivity• Kakwani progressivity indicator

• CZ policies are more progressive than the RO ones

• Both CZ and RO policies are more progressive in RO than in CZ, possibly due to the fact that in CZ the income structure of the population is much more equal than in RO

• Benefits seem to be more progressive than tax concessions both in CZ and RO

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Conclusions (I)

At the 60% poverty line,• RO policies are more effective in reducing poverty in the Czech Republic than in

Romania

• CZ policies achieve greater poverty reduction in the Czech Republic than in Romania, as well

• RO population characteristics diminish the poverty reducing potential of the given set of policies

• The rest of the tax benefit system is likely to influence the success of the child related policies

• At the 40% poverty line, the differences in the effects of the child related policies are less pronounced, except for single parent families and large families (with 3+ children)

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Conclusions (II)

• The Czech child support policies make the bottom part of the income distribution more equal, but worse off in absolute terms

• The Czech population is much more equal than the Romanian population, so less targeted, but slightly more generous benefits (as the Romanian system has) would be more effective than in Romania where the structure of the population is much more unequal

• Targeting the bottom of the income distribution as the Czech family policies do is more effective in relieving severe poverty (but not the one based on the higher threshold)

• Our results suggest that the interaction between policies and the socio-demographic characteristics of the population plays an important role in determining the redistributive effect of policies

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Thank you!