Abstract
A large body of research has demonstrated that child benefit systems are of paramount importance in reducing child poverty, thus having an important vertical equity component. Although all child benefit systems embody in one way or the other such vertical equity objective, the primary objective of child benefit systems is to (at least partly) compensate for the costs associated with childrearing and to minimize the welfare loss relative to childless families, a horizontal equity objective. Most studies are concerned with vertical equity and child poverty reduction; here we also explicitly take the dimension of horizontal equity into account. In this paper, we propose and develop a two-dimensional framework for evaluating and classifying the outcomes of child benefit systems in terms of both vertical and horizontal equity. Treating these two objectives as analytically distinct permits the construction of a synthetic index of child benefit outcomes and allows for the explicit incorporation of a value judgement about the most important objective of child benefit systems. In doing so, we propose a novel measure for gauging horizontal equity based on the cost of children implicit in commonly used equivalence scales drawing on the public finance literature. We demonstrate the potential of our evaluative framework for policy purposes by means of an empirical application for 31 European welfare states. We contribute to the literature by highlighting the role of characteristics of benefit systems in achieving certain objectives regarding horizontal and/or vertical equity.
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Notes
Our focus here is on child benefits (either in the form of social benefits or tax advantages), as these are explicitly linked to the presence of children. Of course, other provisions in the tax-benefit system are also important for the living standard of families with children, such as housing allowances, work-related benefits and social assistance (see e.g. Bradshaw and Huby 2014; Van Lancker et al. 2015). In principle, our analysis can be extended to these other policies.
It should be noted that the applicability and the normative foundation of this notion of HE is a matter of ongoing debate. For instance, the issue of reranking (that is, individuals that take a different position in the income distribution after taxes are imposed) poses considerable problems for the HE command that equals should be treated equally (Aronson et al. 1994; see also Kaplow 1989, 2000).
Children can also bring benefits to parents, which according to some scholars should be taken into account when comparing living standards of families with and without children. According to Pollak and Wales (1979) an equivalence scale that incorporates these benefits is called an ‘unconditional’ equivalence scale and is the one that should be used when comparing welfare levels of different family types. Other authors (e.g. Deaton and Muellbauer 1986) argue that ‘conditional’ equivalence (i.e. not including the benefits parents derive from their children) are nevertheless appropriate for policy purposes, as the standard of living should be the relevant concept and not subjective happiness.
Of course, arguments to support concerns for VE can also be derived from egalitarian theories of justice.
Single parents are defined as a parent living with one or more children. This means that lone parents living in multi-unit households (e.g. three generations) are not identified here as single parents. The impact of this choice on outcomes is difficult to predict, given that little is known about the way resources are shared among multi-unit families, and hence which is the appropriate equivalence scale to apply.
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Acknowledgments
The authors would like to thank Dieter Vandelannoote, Tine Hufkens, and the participants in the FISS 21th Research Seminar (Sigtuna) and the 4th General Conference of the International Microsimulation Association (Canberra) for comments and suggestions. Wim Van Lancker acknowledges financial support from the Research Foundation-Flanders (FWO Vlaanderen).
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Verbist, G., Van Lancker, W. Horizontal and Vertical Equity Objectives of Child Benefit Systems: An Empirical Assessment for European Countries. Soc Indic Res 128, 1299–1318 (2016). https://doi.org/10.1007/s11205-015-1080-9
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DOI: https://doi.org/10.1007/s11205-015-1080-9