Distributional impacts of cash allowances for children: a microsimulation analysis for Russia and Europe DARIA POPOVA, EUI

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1 Distributional impacts of cash allowances for children: a microsimulation analysis for Russia and Europe DARIA POPOVA, EUI 2013 EUROMOD research workshop Lisbon Portugal 2-3 October 2013

2 Research objectives To define ways to improve material well-being outcomes of children in Russia by means of policy transfer i.e. to estimate the potential gains if the Russian system of cash transfers for children was to be re-designed along the policy parameters of four EU countries Sweden, Germany, Belgium and the United Kingdom and vice versa.

3 Background and motivation Material well-being indicators, e.g. income distribution and poverty, are the key variables that affect the overall well-being of children. In most of European countries child poverty rates has grown over the past 20 years and are higher than overall poverty rates. Higher child poverty rates are the result of the combined impact of socio-demographic trends, labour market conditions and public policies. Higher public spending on social programmes for families with children is associated with lower absolute and relative child poverty rates. At the same time, the variation in the design of programmes appears to account for most of the variation in child poverty in Europe. 3

4 The case of Russia Compared to the EU, below-average performance in many dimensions of child well-being, especially in terms of material well-being and health outcomes. Prolonged economic crisis in the 1990s, growing inequality and dramatic demographic and family formation changes, a shift from universal welfare provision to neo-liberal residual welfare model. Inadequate social protection system for families and children: poor funding; low level of social assistance, bad targeting performance and insufficient supply and quality of childcare institutions; decentralization reform (2005). A pro-natalist shift in policy objectives (2007), the stated goal of the reforms being the stimulation of second-parity births. 4

5 5 Poverty headcount in Russia by age group

6 Theoretical framework The study applies the classical impact evaluation framework to quantify the effects of policies on beneficiaries, to the domain of family policy. Policy outcomes are measured by changes in the aggregate inequality and poverty indices. In terms of policy input, the main focus of this study is cash transfers for families with children. In line with the best practice approach, this study analyzes Russian policies for children and families in comparison with those of European countries. Gauthier s typology of family policy models: proegalitarian (Sweden), pro-traditional (Germany), pronatalist (Belgium) and non-interventionist (the United Kingdom). 6

7 Family policy models in EU Sweden Germany Belgium UK RF Family policy model Policy objectives Level of support: Support for working parents pro-egalitarian promote gender equality preserve traditional family pro-natalist raise fertility rates maintain minimum intervention to families protraditional noninterventionist noninterventionist with strong pro-natalist rhethoric raise fertility rates high medium medium low low Cash benefits medium high high high low Child care services high low high low medium Universalism /selectivity universal mostly universal universal and means-tested mostly meanstested mostly meanstested Source: Own analysis based on Gauthier (1996)

8 Methods and data The first full tax-benefit MSM for Russia RUSMOD Constructed on the platform of EUROMOD a multi-country tax-benefit model for the EU. See: Simulates social contributions, personal income tax and most cash allowances effective in 2010 (both at federal and regional level). Attached to the 2010 wave of the Russian Longitudinal Monitoring Survey (6,325 households and 16,918 individuals). Accounts for unreported income and a non-take up of meanstested benefits. 8

9 Baseline policy characteristics, 2010 Sweden Germany Belgium UK RF Beneficiaries, % of all households Mean size per householdbeneficiary, Euros per month 27.9% 27.3% 31.2% 28.4% 18.1% Expenditure, % of GDP 0.71% 1.29% 1.20% 1.50% 0.12% Vertical efficiency, % of the budget spent on the poor 23.3% 29.8% 29.6% 57.2% 38.6%

10 Alternative designs of cash allowances for children, 2010 Sweden Germany Belgium UK RF Type of allowance Only universal allowance Universal allowance + income-tested allowance Universal allowance + income-tested allowance Universal allowance + income-tested tax credit Only incometested allowance Benefit unit Nuclear family Nuclear family Nuclear family Nuclear family Nuclear family Child age threshold Changes in amounts by: The number of children in family The age of the child 16 years (18 if in secondary school) Decreases with each additional child Increases with age 18 years (25 if in full-time education and does not earn more than a specified amount) Increases starting with the 4 th child No 18 years (25 if in full-time education, not married and does not earn more than a specified amount Increases with each additional child until the 4th one Increases with age The type of family No No Supplement for lone parents Sources: EUROMOD and RUSMOD 16 years (19 if in school) Decreases with each additional child Increases for children under 1 year Supplement for lone parents 16 years (18 if in full-time education) Increases starting from the 3d child in several regions Increases in several regions Supplements for lone parents

11 Distributive outcomes of baseline policies

12 Reform scenarios Reform 1 swap child benefits from Sweden, Germany, Belgium and the UK to Russia: Reform 1.1 budget-neutral Reform 1.2 budget growth up to the average European level = 10 times (from 0.12 to 1.23% of GDP) Reform 2 swap child benefits from Russia to Sweden, Germany, Belgium and the UK (budgetneutral)

13 Distributive outcomes - Reform 1.1

14 Distributive outcomes Reform 1.2

15 Distributive outcomes Reform 2

16 Summary of main results For Russia the effect of level of spending is higher than the design effect. The main problem is negligible benefit amounts; the Russian design does not appear to be less effective, when transferred to any of the four European countries in replacement of their current arrangements. The most effective policy design for Russia is policy mix comprising both universal and means-tested benefits (as in the UK and Belgium). The major design related problem in Russia is a neglect of couples with 2 children, despite the fact that promotion of second parity births has been declared one of the priorities of the national strategy of demographic development. 16

17 Future plans Extending the study to the rest of the child related cash benefits, apart from cash allowances, and to non-cash policies. Extending the analysis by estimating the outcomes of reforms for all children, rather than children from poor families. Accounting for the changes in the take up of means-tested benefits after increasing the amounts. Enlarging the geographic scope in policy learning to include other European countries simulated by EUROMOD, other post-socialist economies being of the highest interest. Studying wider effects of policy reforms, e.g. on demographic behaviour. 17

18 Thank you! 18

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