Child Benefit Reforms and Principles of Redistribution

Child benefits systems embody objectives of horizontal redistribution (i.e. from families without to families with children) as well as vertical redistribution (from high to low incomes). These principles are reflected in the characteristics of the child benefit system: is it universal or selective, or a combination of both? In this paper, we use these principles to position the current system of child benefits in Belgium in terms of horizontal and vertical redistributive outcomes. As an indicator for vertical redistribution, we use the impact on income inequality and poverty, as well as how these benefits are distributed over income groups. We also present a measure for horizontal redistribution, trying to capture the fiscal flows from families without children to families with children, as well as between families of different sizes. Using the microsimulation tax-benefit model MEFISTO/EUROMOD, we calculate vertical redistributive effects of the current system (baseline scenario) in terms of inequality and child poverty reduction. Our approach is innovative in that we take into account actual costs of childrearing based on a normative budget standard, and not only rely on the modified-OECD scale. Next, we calculate the effects of a set of alternative scenarios of three extreme positions: a fully universal system, a strongly income selective system and a strong categorically selective system. What balance between horizontal and vertical redistribution is struck by these different scenarios, compared to the benchmark of the baseline? We conclude with the outcomes of a mixed system, and some generalizable recommendations for policy makers to combat child poverty.