Banks, J; Brewer, M; (2002) Understanding the relativegenerosity of governmentfinancial support to familieswith children. (IFS Working Papers W02/02 ). The Institute for Fiscal Studies, UCL (University College London), The Institute for Fiscal Studies: London, UK.

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Abstract

The principal of horizontal equity can be interpreted as requiring that householdswith the same pre-transfer incomes and the same consumption needs should receivethe same post-transfer incomes. We argue the generosity of government financialsupport to families with children should be analysed with respect to such a baseline.Although not without problems, equivalence scales form an important part of such aprocedure. The comparison of financial support to families with children with acorresponding equivalence scale, both over time and between countries, should give amore accurate picture of generosity than comparisons of cash values alone. Wediscuss potential advantages and drawbacks of such comparisons, illustrating withcomparisons of the US and UK systems. The main drawback is that we can onlyevaluate the generosity of support for children relative to that for adults. With thisrestriction, horizontal equity is more likely to be achieved for couples with 1 childthan for those with 2 children. For some groups, the US is more generous to children(relative to adults) than the UK, but this difference is partly generated by the USsystem being less generous to childless households than the UK. The principal of horizontal equity can be interpreted as requiring that householdswith the same pre-transfer incomes and the same consumption needs should receivethe same post-transfer incomes. We argue the generosity of government financialsupport to families with children should be analysed with respect to such a baseline.Although not without problems, equivalence scales form an important part of such aprocedure. The comparison of financial support to families with children with acorresponding equivalence scale, both over time and between countries, should give amore accurate picture of generosity than comparisons of cash values alone. Wediscuss potential advantages and drawbacks of such comparisons, illustrating withcomparisons of the US and UK systems. The main drawback is that we can onlyevaluate the generosity of support for children relative to that for adults. With thisrestriction, horizontal equity is more likely to be achieved for couples with 1 childthan for those with 2 children. For some groups, the US is more generous to children(relative to adults) than the UK, but this difference is partly generated by the USsystem being less generous to childless households than the UK.

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