Financial Support for Families with Children and Its Trade-Offs: Balancing Redistribution and Parental Work Incentives to Increase Well-Being of Families

Financial support for families with children implies inherent trade-offs some of which are less obvious than others. In the end these trade-offs determine the effectiveness of policy with respect to the material situation of families and employment of parents - two crucial elements for the well-being of families. We analyse several kinds of trade-offs involved using a careful selection of potential changes to the system of financial support for families with children. We focus on: 1) the trade-off between redistribution of income to poorer households and improving work incentives, 2) the trade-off between improving work incentives for better off and poorer households, 3) the trade-off between improving work incentives for first and for second earners in couples. The exercise is conducted on data from Poland, a country characterized by high levels of child poverty, low female employment and one of the lowest fertility rates in Europe. We demonstrate the complexity of potential consequences of family support policy and stress the need for well-defined policy goals and careful analysis ahead of any reform.