To what extent do welfare states compensate for the cost of children? The joint impact of taxes,benefits and public goods and services

Abstract

In order to alleviate child poverty, contemporary European welfare states have shifted their focus increasingly towards child-centred investment strategies. However, studies examining the generosity of welfare states to families with children focus mainly on cash benefit packages, or on government expenditure, while not taking into account the actual out-of-pocket costs families have to make to fulfil their needs. This article aims at contributing to existing studies by: (1) empirically assessing the needs and costs of children across welfare states by making use of cross-nationally comparable reference budgets, while taking into account publicly provided or subsidised services; (2) simulating the cash benefits and taxes that affect households with children through the tax–benefit system, by making use of the new Hypothetical Household Tool (HHoT) in EUROMOD; and (3) combining both types of information in order to compare the essential out-of-pocket costs for children between 6 and 18 years old with the simulated cash benefit packages. We propose a new indicator that can be used to assess welfare state generosity to families with children: the child cost compensation indicator. The use of the indicator is empirically illustrated by comparing six European welfare states: Belgium, Finland, Greece, Hungary, Italy and Spain. The article shows that, even though with important cross-national variation, cash transfers generally amount to less than 60 percent of the cost of children. Although in five out of six countries support for families is higher at the lower end of the income distribution, for households living on a low gross wage, the income of a family with children is less adequate compared to a similar childless family and is in many cases insufficient to participate adequately in society.