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Incomes, Incentives and the Growth of Means Testing in Hungary

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  • Gerry Redmond

Abstract

In this paper a new microsimulation model for Hungary is used to simulate the full impact of the April 1996 reforms to child-related benefits. This, Family Allowance is means tested, and earnings-related maternity and child care pay are replaced with means-tested flat-rate payments. Because of increases in levels of flat-rate maternity/child care payments, the overall effect of the reforms is found to be mildly progressive compared with the 1995 system. However, the targeting of child-related payments is still found to be spread throughout the income distribution, rather than focused on low-income households. An alternative scheme, modelled on the UK means-tested benefits system, achieves a much greater level of targeting, but has the side-effect of greatly increasing the effective marginal tax rates of low-income working households with children. In view of the poverty and employment traps that such marginal taxation has caused in the UK, the paper cautions against the over-extension of means testing in the Hungarian benefits system.

Suggested Citation

  • Gerry Redmond, 1998. "Incomes, Incentives and the Growth of Means Testing in Hungary," Discussion Papers 0087, University of New South Wales, Social Policy Research Centre.
    • Handle: RePEc:wop:sprcdp:0087
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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. Redmond,Gerry & Sutherland,Holly & Wilson,Moira, 1998. "The Arithmetic of Tax and Social Security Reform," Cambridge Books, Cambridge University Press, number 9780521632249.
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    Cited by:

    1. Jeni Klugman & John Micklewright & Gerry Redmond, 2002. "Poverty in the Transition: Social expenditures and the working-age poor," Papers inwopa02/18, Innocenti Working Papers.
    2. Peter Whiteford, 1995. "The use of replacement rates in international comparisons of benefit systems," International Social Security Review, John Wiley & Sons, vol. 48(2), pages 3-30, April.
    3. Kitty Stewart & Carmen Huerta, 2006. "Reinvesting in Children? Policies for the very young in South Eastern Europe and the CIS," Papers inwopa06/35, Innocenti Working Papers.
    4. Sutherland, Holly & Immervoll, Herwig & de Vos, Klaas, 2000. "Child poverty and child benefits in the European Union," EUROMOD Working Papers EM1/00, EUROMOD at the Institute for Social and Economic Research.
    5. 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.
    6. 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.
    7. D�ra Benedek & Orsolya Lelkes, 2008. "Assessment Of Income Distribution And A Hypothetical Flat Tax Reform In Hungary," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 173-186.
    8. 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, using a micro," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 604-623.
    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 Saunders, 1998. "Using Budget Standards to Assess the Well-Being of Families," Discussion Papers 0093, University of New South Wales, Social Policy Research Centre.
    11. Bruce Bradbury, 1992. "The Welfare Interpretation of Family Size Equivalence Scales," Discussion Papers 0037, University of New South Wales, Social Policy Research Centre.
    12. Sutherland, Holly, 2001. "Reducing child poverty in Europe: what can static microsimulation models tell us?," EUROMOD Working Papers EM5/01, EUROMOD at the Institute for Social and Economic Research.
    13. 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.
    14. 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.
    15. Bruce Bradbury, 1999. "Tax Theory and Targeting: A Survey," Discussion Papers 00100, University of New South Wales, Social Policy Research Centre.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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