A Basic Income for Europes Children

1
A Basic Income for Europes Children?

• Horacio Levy, Christine Lietz and Holly
  Sutherland
• ISER, University of Essex
• Institute for Advanced Studies, Vienna
• IMA conference 20-22 August 2007, Vienna

2
Motivation

• Child poverty rates vary widely across the EU
  (EU-15)
• from 9 in Denmark to 26 in Italy in 2004
  (Eurostat)
• Policies that are intended to increase the
  incomes of families with children vary widely in
  size and design.
• What would be the effect of a common level and
  structure of child payment across the EU?
• What if the burden of financing the cost were
  shared between EU nations rather than borne
  within them?

3
What the paper does

• Uses EUROMOD to simulate the effects of topping
  up existing cash support for children to a
  guaranteed level for each child (CBI)
• Considers how to set the level, and explores the
  implications of various levels on child poverty
  rates
• level relative to the national or EU median
  incomes
• child poverty relative to 60 of national or EU
  median incomes
• Makes the implementation of the top-up
  revenue-neutral (first round) by financing it
  with a fully-flat tax set at the European level
• Gainers and losers families and countries

4
EUROMOD

• A tax-benefit microsimulation model for EU15
• Built with comparability across countries as the
  main objective
• Based on 12 different sources of household
  microdata
• 2001 systems of cash benefits, income taxes and
  social contributions are simulated
• Household disposable income can be calculated and
  re-calculated under alternative scenarios
• Static calculations
• no modelling of individual behavioural change
• no accounting for macro-economic second order
  effects
• assume full take-up of benefits and no tax evasion

5
Child basic income (CBI) design and assumptions

• Qualifying children aged lt 18
• CBIs are set as proportions of median national
  equivalised household incomes 10, 20, 30, 40
• Top-up to existing child contingent payments
• If the CBI is less than the amount received on
  behalf of a particular child, this amount remains
  unchanged
• The additional payment is not taxed or withdrawn
  by other parts of the tax-benefit system
• Flat tax common EU rate on all non-benefit
  income
• Poverty threshold national using 60 of baseline
  median as fixed threshold

6
Effects of the CBIs

• The size of the average payment depends on
• The level of national income and the proportion
  of median national incomes that is used
• The size of the existing system of child payments
• The extent of targeting of the existing system
• The aggregate cost also depends on
• The number of children in the population
• The distributional effect also depends on
• The position of children in the distribution
• Household composition
• The nature of any targeting under the existing
  system

7
Average total child payment per child under the
CBI
8
Reduction in the child poverty rate
9
Paying for it with a flat tax

• Tax on all non-benefit income with no exemptions,
  allowances etc additional to existing taxes
• 0.52 pays for a 10 CBI 6.92 for a 40 CBI
• High income countries contribute more per capita
  in terms
• There are losers as well as gainers
• Within countries
• A shift from the childless to children, as
  expected
• Some high income households with children lose
• But in some countries households with children as
  a group are net losers

10
Gainers and losers between countries the net
budgetary effect of the CBI/FT as of HDI
11
Concluding points policy lessons

• Practical policy lessons low levels of CBIs are
  effective in the Southern countries with
  under-developed existing systems
• Financing a child BI with a pure FT involves
  undesirable burdens on the low-income childless
  with non-benefit income (especially pensioners)
• consider other financing options
• consider a complementary guaranteed pension
  income (FT exempt)
• Between country subsidies? Why should a country
  that has a good standard of child support
  contribute to those that do not?
• race to the bottom?
• But how else to redistribute to poor children in
  poor countries?
• fertility and a shared investment?
• CBI as a top-up?
• national financing, with other mechanisms for
  cross-border subsidy