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Incomes, incentives and the growth of means-testing in Hungary


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  • Gerry Redmond


The purpose of this paper is to examine the reform of family benefits and the growth of means-testing in Hungary. From 1996, many family benefits were means-tested for the first time. A new microsimulation model for Hungary, running on recent survey microdata, is used to simulate the impact of the 1996 reforms on government expenditures, the distribution of incomes, the targeting of benefits and effective marginal tax rates. These reforms are found to be largely benign and even progressive, but they also appear to be paving the way for the further extension of means-testing. The model is used to investigate such an extension by simulating the impact of a UK-style system of means-tested family benefits in Hungary. This system achieves some expenditure savings and better targeting of benefits, but also greatly increases effective marginal tax rates on low-income households with children. The paper argues that resulting poverty traps may increase child poverty in Hungary in the longer term and cautions against the overextension of means-testing.

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Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 20 (1999)
Issue (Month): 1 (March)
Pages: 77-99

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Handle: RePEc:ifs:fistud:v:20:y:1999:i:1:p:77-99

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  1. Coulter, Fiona & Heady, Christopher & Lawson, Colin & Smith, Stephen, 1997. "Social security reform for economic transition: the case of the Czech Republic," Journal of Public Economics, Elsevier, vol. 66(2), pages 313-326, November.
  2. John Micklewright & Gyula Nagy, 1998. "The Implications of Exhausting Unemployment Insurance Entitlement in Hungary," Budapest Working Papers on the Labour Market 9802, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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Cited by:
  1. Lelkes, Orsolya & Benedek, Dóra, 2006. "A magyarországi jövedelem-újraelosztás és egy egykulcsos adóreform vizsgálata mikroszimulációs modellel
    [An examination of income redistribution in Hungary and single-rate tax reform, usin
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 604-623.
  2. Peter Saunders, 1998. "Using Budget Standards to Assess the Well-Being of Families," Discussion Papers 0093, University of New South Wales, Social Policy Research Centre.
  3. Jeni Klugman & John Micklewright & Gerry Redmond & UNICEF - United Nations Children's Fund, 2002. "Poverty in the Transition: Social expenditures and the working-age poor," Innocenti Working Papers inwopa02/18, UNICEF Innocenti Research Centre.
  4. Tony Eardley & Peter Saunders & Ceri Evans, 2000. "Community Attitudes Towards Unemployment, Activity Testing and Mutual Obligation," Discussion Papers 00107, University of New South Wales, Social Policy Research Centre.
  5. repec:ese:emodwp:em5-01 is not listed on IDEAS
  6. repec:ese:emodwp:em1-00 is not listed on IDEAS
  7. Peter Saunders, 1998. "Global Pressures, National Responses: The Australian Welfare State in Context," Discussion Papers 0090, University of New South Wales, Social Policy Research Centre.
  8. Bruce Bradbury, 1999. "Tax Theory and Targeting: A Survey," Discussion Papers 00100, University of New South Wales, Social Policy Research Centre.
  9. Gerry Redmond, 1999. "Tax-benefit Policies and Parents' Incentives to Work: The Case of Australia 1980-1997," Discussion Papers 00104, University of New South Wales, Social Policy Research Centre.
  10. Peter Whiteford, 1995. "The Use of Replacement Rates in International Comparisons of Benefit Systems," Discussion Papers 0054, University of New South Wales, Social Policy Research Centre.
  11. Sheila Shaver & Michael Fine, 1995. "Social Policy and Personal Life: Changes in State, Family and Community in the Support of Informal Care," Discussion Papers 0065, University of New South Wales, Social Policy Research Centre.
  12. Peter Saunders & Cathy Thomson & Ceri Evans, 2000. "Social Change and Social Policy: Results from a Survey of Public Opinion," Discussion Papers 00106, University of New South Wales, Social Policy Research Centre.
  13. Bruce Bradbury, 1992. "The Welfare Interpretation of Family Size Equivalence Scales," Discussion Papers 0037, University of New South Wales, Social Policy Research Centre.


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