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Understanding the relative generosity of government financial support for families with children

  • James Banks

    ()

    (Institute for Fiscal Studies and University of Manchester)

  • Mike Brewer

    ()

    (Institute for Fiscal Studies and ISER, Essex University and Institute for Fiscal Studies)

The principal of horizontal equity can be interpreted as requiring that households with the same pre-transfer incomes and the same consumption needs should receive the same post-transfer incomes. We argue the generosity of government financial support to families with children should be analysed with respect to such a baseline. Although not without problems, equivalence scales form an important part of such a procedure. The comparison of financial support to families with children with a corresponding equivalence scale, both over time and between countries, should give a more accurate picture of generosity than comparisons of cash values alone. We discuss potential advantages and drawbacks of such comparisons, illustrating with comparisons of the US and UK systems. The main drawback is that we can only evaluate the generosity of support for children relative to that for adults. With this restriction, horizontal equity is more likely to be achieved for couples with 1 child than for those with 2 children. For some groups, the US is more generous to children (relative to adults) than the UK, but this difference is partly generated by the US system being less generous to childless households than the UK.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W02/02.

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Length: 48 pp
Date of creation: Jan 2002
Date of revision:
Handle: RePEc:ifs:ifsewp:02/02
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  1. Kevin Milligan, 2005. "Subsidizing the Stork: New Evidence on Tax Incentives and Fertility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 539-555, August.
  2. Blank, Rebecca M. & Card, David & Robins, Philip K., 1999. "Financial Incentives for Increasing Work and Income Among Low-Income Families," Department of Economics, Working Paper Series qt2f15x7sg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  4. Banks, James & Johnson, Paul, 1994. "Equivalence Scale Relativities Revisited," Economic Journal, Royal Economic Society, vol. 104(425), pages 883-90, July.
  5. Edgar O. Olsen, 2001. "Housing Programs for Low-Income Households," NBER Working Papers 8208, National Bureau of Economic Research, Inc.
  6. McClements, L. D., 1979. "Muellbauer on equivalence scales," Journal of Public Economics, Elsevier, vol. 12(2), pages 233-242, October.
  7. Mike Brewer, 2001. "Comparing in-work benefits and the reward to work for families with children in the US and the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 22(1), pages 41-77, January.
  8. Muellbauer, John, 1979. "Reply to McClements," Journal of Public Economics, Elsevier, vol. 12(2), pages 243-243, October.
  9. Muellbauer, John, 1979. "McClements on equivalence scales for children," Journal of Public Economics, Elsevier, vol. 12(2), pages 221-231, October.
  10. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-82, September.
  11. David G. Blanchflower & Richard B. Freeman, 2000. "Youth Employment and Joblessness in Advanced Countries," NBER Books, National Bureau of Economic Research, Inc, number blan00-1, October.
  12. Bruce D. Meyer & Dan T. Rosenbaum, 2000. "Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects," NBER Working Papers 7491, National Bureau of Economic Research, Inc.
  13. Pollak, Robert A & Wales, Terence J, 1979. "Welfare Comparisons and Equivalence Scales," American Economic Review, American Economic Association, vol. 69(2), pages 216-21, May.
  14. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October.
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