The Interplay of Cash and Tax Benefits for Children in 10 European Countries

By Mathias Maucher

Whereas cross-sectional comparative research on monetary support for families with children linking quantitative data on cash and tax benefits with institutional regulations and system characteristics seems to be well established, systematic analyses of the long-term lines of development, however, are still lacking. This article therefore aims at analysing the child-related elements of both instruments over a longer span of time. Partly based on a newly accesible database, the presentation uses a descriptive and institution-orientated approach.

Plan of article - Topics and questions tackled

Focusing on Germany (D) and five of its neighbour countries - Austria (A), Belgium (B), France (F), the Netherlands (NL), and Switzerland (CH) -, the following piece of research intends to compare the relative importance of general family allowances/child benefits and to determine and evaluate the monetary value of standard tax reliefs for dependent children. Both time-series data from the MZES/EURODATA Family Policy Database (http://www.mzes.uni-mannheim.de/projekte/fpdb/) as well as OECD, EUROSTAT, ILO and national statistics are used. Reference is made to central institutional characteristics of both benefits and tax and transfer systems. To the highest possible degree, Luxembourg (L) as well as the three central European OECD member countries Czech Republic (CZ), Hungary (H), and Poland (PL) are included in the analysis of the family's income position after taxes, social contributions and cash transfers. Whereas the monetary transfers are screened for about the last five decades up to the mid 1990s, the qualitative and quantitative analysis of the fiscal treatment of children has to be limited to the period 1979-1998 due to lack of comparable data before the late 1970s. The article endeavours to provide an overview on both the empirical relevance of different types of tax reliefs since the late 1970s and their effects on household income. Two possible units of comparison come into play, household type and instrument of family policy. Whereas in the first case the focus is on different levels of disposable household income of a married single earner with two children juxtaposed with a childless single person, the second perspective 'confronts' fiscal reliefs with cash benefits. Again the main concern will be to identify factors related to common patterns and similar lines of development. Additionally, the hypothesis that countries providing rather generous cash benefits will 'score high' when it comes to alleviating the financial burden of families by means of tax relief for children will be tested. This contribution intends to depict the major patterns of support for children through the national social transfer and income tax systems as far as the benefit levels are concerned. Is it possible to assume that there is a (coordinated) interplay of monetary transfers and fiscal reliefs granted for children or do the two systems evolve and coexist more or less independently? Finally, what is their combined effect on the family income, both in a cross-country perspective and in relation to a single person without children with the same gross earnings level?

Schemes providing cash benefits to families

A necessary precondition for comparing benefit levels and institutional regulations amongst countries and across time is to define the precise object of comparison. This holds for the schemes of social protection as well as for the specific cash and tax benefits under investigation. Table 1 lists the family benefit schemes data stem from and institutional regulations are related to. Both their names in the official language(s) and a translation into English are given. Entries in the column 'year of establishment' refer to the year in which the first payment to a (sub)group covered by the scheme was made. Given the fact that the analysis brings together countries with different legacies as regards the concept of benefit design, rules of financing and administrative structures, the last column indicates to which extent the institutional fragmentation still played a role in 1996. In all countries without a universal scheme, i.e. in Austria, Belgium, France, Germany, Luxembourg, (the Netherlands), Poland, and Switzerland, the by far and large most important scheme was selected.
With regard to the systems of public family support, there exists a basic institutional difference between countries with residencerelated, universal schemes, financed by general tax revenues on the one hand, and countries with fragmented systems, differentiating between groups of persons according to entitlement and benefit regulations, (co-)financed by employers' social contributions and often administrated by social security agencies or special funds on the other. Many of these original differences have been blurred over the last half decade, elements of both 'ideal types' amalgamated. Therefore the classification of countries takes into account the phase when the family benefits were introduced and 'shaped' as well as their present configuration. Given the numerous changes since 1950, the following categorization is necessarily based on the dominant feature related to the eligibility for the scheme, to the mode of financing, and to the administrative structures during the last 50 years.
On the one hand, the Czech Republic and Hungary represent countries with a universal scheme, dating from the socialist era and continued after 1990. The Netherlands implemented a uniform system when they integrated the five existing schemes in 1980. Since then the child benefit is 100 percent financed by the national government. Germany started with an employmentrelated system in the private sector in 1954, which gradually became more generalised. 'In December 1955, entitlement was extended to cover all active and nonactive persons with three or more children. The federal government contributed to the financing of child benefits for inactive persons. With this, family allowances lost in fact their exclusively employmentrelated character as early as 1955' (Bahle 2001). In 1961 a statefinanced general child benefit for children of birth rank two was introduced, but only for families with annual incomes below 7,200 DM. 'The next major reform in 1964 completely reorganized the whole system: the child benefit was totally financed out of the federal budget and the old professional compensation funds were abolished' (Bahle 2001). In 1975 the entitlement was extended to cover families with one child, completely independent of the income. Eight years after having implemented the child benefit as a universal cash transfer, benefits - except for the first child - in 1983 were once again made dependent on income, varying between minimum and maximum amounts. In the same year, child tax allowances were reintroduced and low-income families who could not benefit from it received a child benefit supplement (Kindergeldzuschlag) for each child. 'This dual system of tax and cash benefits, with deductions for higher incomes and supplements for lower incomes, remained in force until 1996' (Bahle 2001). Poland started with one general, employment-related scheme, too, in 1947. Only 30 years later, selfemployed farmers also became entitled, paid out by the Social Insurance Institution (Zaklad Ubezpieczen Spolecznych/ZUS). Since 1990 their benefits are administered by a specific agency, the Farmers' Social Insurance Institution (Kasa Rolniczego Ubezpieczenia Spolecznego/KRUS). In the general scheme the child benefit was completely financed by employers' social contributions until 1994. Since 1995, they have been financed out of the central state budget, as in the case of the child benefit for independent farmers.
On the other hand, Belgium, France and Luxembourg from the beginning organized a separate scheme of social security for family benefits, exclusively or largely financed by social contributions of employers (and self-employed). The management of funds was conferred to specific agencies . Austria has established a special fund for the equalisation of family burdens (Familienlastenausgleichsfonds/FLAF) since the mid 1950s, alimented by employers' social contributions, social contributions of self-employed and the financial participation of federal and state governments. Here, however, no specific agency is in charge of the benefit provision. In addition, the labour market nexus has never been as tight as in the other countries. If the small scheme for war victims, pensioners with small incomes and victims of crimes is left aside, the institutional constellations in Austria and Germany are comparable. With the exception of benefit regulations for small farmers and agricultural workers - in force since 1952 - which apply in a uniform manner for the whole federation, Switzerland is the only European country without a national (framework) legislation in the sphere of family allowances. Following Fux one can underline that 'due to the federalist organization of the country and the predominance of the concept of subsidiarity (…), many of the most important institutions come under the authority of the cantons, the municipalities, or even private organizations and associations. The system of family allowances therefore resembles a jungle of unsystematic complexity' (Fux 2001). For the purpose of this article, it is exclusively the family allowances funds under cantonal legislations that are reported on.

Table 1: Family benefit schemes considered (1950-1998)

Sources: Maucher/Bahle 2000; for CH: Fux 2001; for CZ: Cervenková 1993, Storka 1995; for H: Tárkányi, in Spéder 2001; for L: STATEC, various years; for PL additionally: Golinowska 2001

Notes:
A: Up to 1978 the amounts paid in the subscheme for self-employed and freelancers reached, as a rule, only about 80 to 85 percent of the benefit rates paid in the subscheme for workers and employees.
CH: The years indicated refer to the first resp. last canton legislating child benefits for families with two or more children, Vaud/Wallis resp. Appenzell-Ausserrhoden. Benefits provided by cantonal family allowances funds for families with one child were introduced between 1945 (Fribourg/Freiburg) and 1970 (Obwalden). Striving towards a maximum of consistence with the analyses on fiscal advantages for children as presented by the OECD, all data refer to the canton of Zurich (Zürich), where the legislation on the socalled 'child wage supplements' (Kinderzulagen) was enacted in 1958. This regulation applied to all children, independent from birth rank.
CS/CZ: The year of introduction refers to the former Czechoslovakia (CS). The scheme was continued in both the Czech (CZ) and Slovak Republic (SK) after their separation on 01.01.1993, however.
H: In 1953 the entitlement to family allowances was extended to persons working in agricultural cooperatives and having three or more children, in 1966 to those with at least two children. From 1975 onwards, they received the same amount of family allowance as workers and employees and therefore are no longer distinguished as a specific scheme.
L: Before 01.04.1964 a distinction was made between wage and salary earners and non-employed persons as regards the benefit rates. The family allowances paid to the latter group only amounted to about one fifth (first child) to about half (third to fifth child) of the benefits paid to economically active persons.

List of other schemes (1996; H: only for period 1953-1974; NL: prior to 1963/1979), in chronological order by year of establishment*:
A: Public service employees (Hoheitsverwaltung des Bundes; Post und Bahn; Hoheitsverwaltung der Länder, Bezirke und Gemeinden mit mehr als 2000 Einwohnern); War victims, pensioners with small income(s), victims of crimes (Kriegsopfer, Kleinrentner, Opfer von Verbrechen)
B: Scheme for public service employees (Service public/Openbare diensten); Scheme for self-employed (Régime indépendants/Zelfstandigen); Residual scheme (Régime garanti/Gewaarborgte kinderbijslag)
CH: Scheme for small farmers and agricultural workers (Familienzulageordnung für Kleinbauern und landwirtschaftliche Arbeitnehmer/Caisses d'allocations familiales pour petits paysans et travailleurs agricoles); Schemes for public services employees (Familienzulageordnung für Beschäftigte des Öffentlichen Sektors/Régime d'allocations familiales pour le personnel du secteur public); Schemes for self-employed (Familienzulageordnung für Selbständigerwerbende/Régime d'allocations familiales pour les indépendants) - in 9 cantons (cf. Fux 2001)
D: Scheme for public service employees (System für Beschäftigte im Öffentlichen Dienst)
F: Miner's scheme (Régime mineur); Personnel of public service and other special schemes (Personnel des services publics et régimes spéciaux); Agricultural scheme (Régime agricole)
H: Family allowances scheme for persons working in agricultural cooperatives (Mezögazdasági termelöszövetkezeti családok)
L: Employees and civil servants (Employés et fonctionnaires); Non-employed persons (Non-salariés). The distinction between the different schemes was discontinued as of 01.01.1997.
NL (all completely discontinued in 1979 - as the scheme for workers and employees in industry and commerce): Public service employees (Overheidspersoneel); Social insurance recipients (Rentetrekkers); Small self-employed (Kleine zelfstandigen)
PL: Self-employed farmers (Rolnicy induwidualni)

Institutional regulations

When comparing family allowances in European countries, one can identify common properties and main lines of development shared by all of them. One example is the question of eligibility to social protection schemes. Over the last decades, in countries with fragmented systems the coupling between earned employment and the entitlement to benefits became looser and was finally withdrawn using different techniques (gradual lifting of the clause defining this link; establishment of complementary scheme). This obviously reduced the factual differences between all countries in the sample. Another point is closely linked to benefit levels. Especially since the mid 1970s, the aim of keeping up the real value of the child benefit seems to be largely agreed upon in all countries, independent of their institutional configuration. If we compare the tools used, it is impossible to identify a common logic, however. Some countries use automatic mechanisms of indexing benefit rates, based on the development of wages or consumer prices in order to achieve a certain stability. The Netherlands, e.g., applied a halfannual dynamisation based on the development of the cost-of-living index in the 1990s. In Luxembourg and Belgium, shifts in the consumer price index are used as a benchmark. Already in 1946, France shifted from an indexation based on wages to an adaptation linked to price increases . Prior to 1996, Germany did not follow in these footsteps, legislating benefit revaluations only on an irregular basis. This tradition came to an end when the dual system of child benefit and child tax allowances had to be redefined. Since then the public transfers are directly linked to standard of living measures. The new point of reference is the officially determined existence minimum of children which must not be taxed and has to be adjusted to consumer price changes. In Switzerland, benefit increases are administered on an irregular basis, too. During the 1990s, the family allowances paid to Hungarian families were not systematically adjusted either. To the contrary, due to the recession their real value fell rather dramatically . The same holds for Poland .
On the other hand, the different elements included in the design of benefit rates created a variety of legal stipulations. In 1998, all countries except for Austria, the Czech Republic, and Switzerland had fixed a differentiation according to the parity of the child. Benefits increase with higher birth rank, often with progressive rates, reaching a maximum per child at birth rank three or four in most of the countries during the period 1950-1998. Divergence is also produced by means of age supplements or via a system differentiating the amount according to age groups across the integral scale (Belgium since 1957, the Netherlands after 1982, the Czech Republic from 1994 on). Whereas both Austria and France introduced age supplements for one age group and redefined a second age group later, Belgium used a differentiation system with initially six and later five age groups. The process of integrating the five existing schemes into one general scheme in the Netherlands in 1980 was linked to a redesign of the benefit rates which have been differentiated according to age groups across the whole scale since then . Finally, in 1994, the Czech system was rescheduled completely, shifting from differentiation according to birth rank to a differentiation according to age group. Some countries take into account the economic resources of households as a tool for regulating entitlement. Benefits are graded by family income or even withdrawn in case a certain threshold is exceeded. The tendency to introduce meanstesting is especially obvious in the three central European countries during the second phase of the transition period after 1994. When the income thresholds were defined by the mid 1990s, the intention to implement cost containment dominated the public debate. Besides, the idea of a stricter targeting of social benefits was advocated, strongly based on policy recommendations brought forward by consultants of the IMF and the World Bank. The income test introduced in Hungary (1996) only applies to families with not more than two children. In the Czech Republic (1996) and Poland (1995) upper limits have been fixed for larger families, too. France experimented with a benefit withdrawal for well-off families in 1998; however, the income threshold was fixed on a relatively high level. Only households with an income of at least 25,000 FF (to be increased by 5,000 FF for every child above birth rank 2 and 7,000 FF for double-earner households) were no longer entitled to family allowances. Western European Countries with residence-related universal systems do not apply, as a rule, any income test .
Table 2 sums up the main features linked to the design of benefit rates. In taking up the guiding question to which extent the major differences 'scope of scheme' and 'mode of financing' can account for cross-country variations, one has to conclude that no systematic correlations with the conceptualization of benefit rates become visible. It is not even possible to depict phase-specific patterns. A general tendency can nevertheless be seen in the sequence of first introducing variations by birth rank and later adding a system with amounts graded by age. This underlines the concern shared amongst policy makers of all countries to encourage the birth of more than two children, necessary for societal reproduction, as well as the insight that every additional child directly reduces the per capita disposable household income and indirectly restricts the option to add to it labour market income earned by the spouse. The seven countries that have implemented phase-specific variations all apply a concept which intends to partially account for higher expenses for clothing, education, and leisure time activities with growing age, starting with children of primary or lower secondary school age. Linking the entitlement with the family income can be identified as one important source of variation, however. In Western European countries, the elements 'universalism' and 'nonapplication of income testing' are highly correlated. Since the geographical scope has been intended and now includes three central European transformation countries, this relationship can no longer be established. Here, income thresholds were defined as a means of cutting down social expenditure during the period of economic transition. A measure seemingly inevitable in the face of growing deficits in the budgets of all public and parastatal authorities, including the social security funds.

Table 2
Sources: Maucher/Bahle 2000; for CH: Fux 2001; for CZ: Cervenková 1993 and 1994, Storka 1995; for H: Tárkányi, in Spéder 2001; for L: STATEC, various years; for PL additionally: Golinowska 2001

Notes:
In the column 'Birth ranks on which increase is applied' the ordinal number indicated to the left of the arrow represents the birth rank to which a first augmentation was applied. The ordinal number to the right of the arrow defines the birth rank up to which the maximum increase per child was enacted. This, however, does not exclude that a higher absolute amount per head for children of any other birth rank was paid.
CH: As for the data, the institutional regulations presented are those in force for the canton of Zurich (Zürich), only.
PL: 'Since 1 March 2000 the family allowance is exclusively available to families whose income per capita does not exceed 50% of average wages' (Golinowska 2001).

Range of different age groups*:
A: 1967-1994: 10+; 1995-1998: 10-18; 19+
B: 1957-1985: 0-6; 6-10, 10-14; 14-16, 16-18; 18+, 1986-1998: 0-6, 6-12, 12-16; 16-18; 18+
CZ: 1994-1998: 0-5; 6-9; 10-14; 15-18 (regular age limit)/26 (extended age limit, if child is in education)
L: 1977-1988: 12+; 1989-1998: 6-11; 12+
NL: 1983-1990: 0-5; 6-11; 12-17; 18-26; 1991-1998: 0-5; 6-11; 12-17; 18-24

Benefit levels

Graph 1 presents the development of the quotient of family allowances for three children and the national income per capita for three persons. Possible age supplements were disregarded .

Graph 1: Benefuts for three children as share of national income per capita for three persons, 1960-1996

What becomes obvious at first sight is the relatively advantageous position of (larger) families in Austria and Belgium. In these two countries, benefits have always been on a level clearly above the average. For France, Luxembourg, and the Netherlands, the benefit rates float in principle around the long-term mean of about 6 percent. In the case of France, the value only sums up the benefit rates for the second and third child. The hexagon (still) is the only country in Europe that excludes families with only one child from the provision of family allowances . Therefore, the graph only inadequately reflects the increase attributable to the birth of a third child. France and Luxembourg put a special 'premium' on children of birth rank 3, an approach generally classified as pronatalist. In a comparative perspective Germany (except for the period since 1996) and Switzerland only provide rather moderate benefits for families with three children. The evident increase of benefit rates across all birth ranks is linked to the reorganization of the German system of financially equalizing family burdens, enacted in 1996.
Looking across time, one can clearly state a tendency towards convergence, even if non-negligible differences in relative shares still persist. Austria and Germany show one common pattern in the sense that step changes upwards are levelled out by continuously decreasing shares during the following years. Whereas the step changes are related to the extension of benefits to cover children of birth rank 1 - in Germany in 1975, in Austria in 1978 -, the monotonously reduced levels are linked to a policy which did not (systematically) rely on the instrument of indexing benefit rates. Revaluation rather takes place at irregular intervals. Switzerland enters into the same group. However, the adaptations of benefit rates are rather smooth and much more in line with the growth rates of the national economy. The more stable development in France seemingly springs from the linkage of consumer price increases with family benefits, too. The same holds for Belgium , Luxembourg, and the Netherlands.

Graph 2a: Benefits for two children aged 15 as share of average gross wage of workers, 1950-2000

Graph 2a shifts the focus from the macroeconomic context to an evaluation of the policy outcome. It compares the amount of transfer income generated by the entitlement to family allowances for two children, aged 15, as a share of workers' average gross wages . Given the empirical evidence of benefit variations by age, we defined a specific age in order to minimize possible distortions springing from the data on child benefits. The decision to opt for age 15 takes up the (more traditional) concept of growing needs and expenditure with increasing age, reflected in many social assistance schemes, too . Again, distortions may not only spring from redefinitions of the reference value, the average gross wage of a production worker, or inconsistencies in the quantitative basis. Different relative weights have to be seen against the background of different general wage levels in the seven countries, too. Controlling for exchange rates and differences in purchasing power, the wages paid e.g. in Switzerland, Germany, and Luxembourg are comparatively high. This inevitably accounts for generally lower rates in these countries.
If we focus on the major developments, basically the same ranking of countries as shown above in graph 1 is being reproduced. This provides additional support to our hypothesis stating that the differences in the relative importance of family allowances follow a more systematic pattern. Path dependencies cannot be overseen. Countries with originally employment-related schemes, building on the concept of a 'family wage/salary', tend to be more generous than countries with resident-related systems. This is especially true for Austria, Belgium, and France. The Belgian (from 1957) and French (from 1963) data include age supplements; this is clearly visible in graph 2b (Belgium) and in graph 2a (France). Due to the lack of raw data, in the case of Austria the age supplements (introduced in 1967) are graphically represented for the period from 1981 onwards, which is reflected in a small step change. Luxembourg arrived at the higher levels only during the last decade, however. Across all countries the smooth ups and downs reflect a real growth or decrease in benefit rates, in the first case partly due to indexation. The consequences of wage moderation and measures with repercussions on social security contributions enter as an additional factor. Their weight cannot be identified in detail in the context of this long-term comparison, however. The evident changes in the relative shares for Austria (1978) and Germany (1975) are related to two additional factors: first, as mentioned above, to the inclusion of children of first birth rank into the payment of family allowances; second, the abrupt increases of the benefit rates coincide with a reorganized interplay of cash and tax benefits. In both countries, the child tax allowance (Kinderfreibetrag) was abolished in the years referred to above - a discontinuation which was compensated for by means of increased cash benefits, however. As above, a general tendency towards continuous convergence across all countries in the sample, especially since the mid 1970s and after a second 'impulse' by the mid 1990s, is clearly documented .

Graph 2b: Benefits for two children aged 15 as share of avarage gross salary of employees, 1950-2000

Especially since the 1970s, the 'employees' have become the dominant occupational group in all (Western) European countries. Graph 2b sketches out the family allowances paid for two children aged 15 as a share of the average income of employees in industry and commerce. It is fairly comparable to graph 2a. The main difference lies in a reduced scale to represent the relative weight of family allowances; they reach a maximum of 12 percent compared to 22 percent above, to be explained by the higher average earned gross income of employees in relation to workers . In Austria, Belgium, and France, family allowances accounts for about 8 to 11 percent of the average gross salary. Even if in Germany employees reached fairly comparable shares as late as the mid 1990s, the child benefit did not even account for half of the transfer income, as it was the case in the three countries mentioned above for the whole rest of the period. Switzerland, too, shows rather modest shares. Again, Luxembourg offers constantly increasing benefits and finally joins the 'top group' by the mid 1990s. A graph for the Netherlands cannot be presented due to a lack of appropriate data on employees' gross earnings.

Fiscal reliefs for children

Taking up the central elements of cross-country variation, this article is exclusively concerned with standard childrelated tax reliefs and focuses on the three dimensions 'existence', 'type' and 'quantitative importance'. Far less ambitious than other pieces of comparative research , it aims at determining the monetary equivalent of the general fiscal advantages for children for a single family type - married single earner with two children with gross average earnings of the average production worker (APW) - over the last two decades .

Graph 3: Existence and type of child-related tax reliefs as share of disposable household income of married one-earner couple with two children, 1979-1998

It seems useful to tackle the topic with an overview on the availability, form and relative weight of tax reliefs for children. Within the period analysed, the large majority of countries had enacted special provisions for dependent children in the respective income tax systems. Their main purpose consists in (partially) accounting for the additional financial strain, put on the family budget by children within the tax system, too. The relative share of fiscal advantages as compared to the net family income oscillates between 1 to 8 percent (even up to 11 percent in Germany, 1996-1998; cf. endnotes 27 and 30 for this special case). The French family splitting scheme has a rather high additional effect, too. No data are presented for Luxembourg. Up to the fiscal year 1990, the Grand Duchy also relied on a family coefficent system. It allocated even larger parts to the children than those fixed in the French income tax code . Calculations for 1984 and 1990 showed an effect which - in relative terms - even exceeded the advantage provided to French one-earner couples with two children . The same holds for the phase since 1991, as indicated by estimations for 1991 and 1998. Arriving at a quotient of about 3 percent in a long-term perspective, Belgium, the Czech Republic, and Germany (1986-1995) occupy a middle position. In contrast, the Hungarian and Swiss provisions did not lift the disposable household income upwards on the scale to any extent worth mentioning.
Additional cross-country variation is mainly produced by two other parametres relevant for the design of tax reliefs, namely the indexation and the grading of benefit levels. As early as 1957 the Austrian child tax allowances were indexed according to price increases. After a phase without automatic adjustments, Belgium inflated the tax reliefs more or less regularly during the period 1976-1988. Since 1989 it is mandatory to adjust all amounts relevant for taxation to inflation on an annual basis. Copying the cash transfer systems, a subsample of countries had or still has fixed a grading of the child-related fiscal advantages by birth rank. Again, this applies to Austria (since 1996) and Belgium (since 1985). In this Benelux country, the grading of the tax credit shows a clear increase from the child with birth rank 3 onwards, inducing substantially higher tax reliefs for larger families. In 1953, the German income tax code provided higher tax allowances for children of birth rank 3 and 4. This differentiation was extended to benefit the second child three years later. To our knowledge, none of the 10 countries used the grading by age . This is not consistent with ‚common practice' in the monetary transfer schemes.
To sum it up, the picture is characterized by a great diversity of country-specific 'solutions' concerning child-related fiscal welfare. Their relative importance to the family budget varies widely, too. If Germany as a special case is left aside, Hungary is the only country which implemented a shift as to the type of tax relief. It is impossible to discover a correlation between the pattern of tax reliefs - i.e. the existence and type - and the dominant institutional features of the family allowances schemes. Nevertheless, it becomes evident that countries that make provisions for a general direct monetary transfer above the average also tend to have incorporated regulations into their income tax code which result in a medium or relatively high standard fiscal advantage for one-earner couples with two children. If one assumes a positive nexus between the relative role of the two instruments of social policy, then Austria, Belgium and France fit in this hypothesis fairly well.
Before I take up the analysis, some definitions are given. Additionally, the empirical tax reliefs are explained with regard to country-specific terminology and their effect. The latter aspect refers to the procedure which determines both taxable income and tax due . Only Austria (Kinderabsetzbetrag) and Luxembourg (modération d'impôt pour enfants) offered a tax credit also labelled accordingly in 1998. On grounds relating to the logic of reducing the burden on familiy incomes, the instruments used can be classified as 'tax credits' in Belgium, France, and Germany. In Belgium, every child gives entitlement to an additional exemption (majoration de la tranche exonérée octroyée pour enfant(s) à charge) to be deducted from the bottom brackets. Since 1945, France applies a quotient system, combining a spouse (quotient conjugal/quotient-époux) and a child (quotient-enfant) coefficient, commonly described as 'family splitting' (quotient familial). In both countries, these regulations have the effect of a tax credit. Pressed by a 1990-ruling of the Federal Constitutional Court which had obliged the German legislative bodies to decide on measures resulting in a complete exemption of children's existence minima within a 5-year-term, they finally opted for a 'mixtum compositum' (Wingen 1997: 232) of cash and tax benefits in reshaping the system of family income support, effective as of 01.01.1996. This construction actually extended the 'dual system' up to the present , combining cash benefits with child tax allowances. It provides a refundable/non-wastable tax credit (Steuervergütung), differentiated according to birth rank, to all tax payers and builds on a complex interplay of child benefit (Kindergeld) and child tax allowance (Kinderfreibetrag) .
In 1998, child tax allowances were available to families in the Czech Republic (odpocty na deti), as well as in the majority of those Swiss cantons (Kinderabzug/déduction pour enfants) that make use of fiscal welfare in one way or another . They had also been fixed for several decades in the German income tax code (1953-1974 and again 1983-1995; and, depending on the perspective assumed, also during 1996-1998). In the Netherlands, child tax allowances (kinderaftrek) were discontinued as early as 1978. Hungary 'experimented' with child tax allowances between 1988 and 1991. In the beginning only families with 3 and more children up to age 14 were entitled. Later, the same deduction could be applied to children of birth rank 1 and 2 under the age of 6. In 1992, the government terminated the system of tax-base reduction, having been of rather modest size, and a tax credit was introduced instead, with higher amounts for all children with parity 3 and higher. These child tax credits were discontinued in 1994 as the first step of the austerity measures. In 1998, child tax credits were reestablished, to be allocated from the fiscal year 2000 onwards.
During the 1990s, the Netherlands (since 1979) and Poland (which never had legislated on child-related tax reliefs since the introduction of personal income tax in 1992) organized a system of family income support exclusively outside the tax system. 'With the crisis of the Dutch welfare state in the first half of the 1970s, child allowances and tax allowances for children were considered for reorganization and budget cuts' (Kuijsten/Schulze 2001). In a first stage, tax allowances for children were largely replaced by higher child allowances in 1979.

Graph 4: Tax benefits for two children as share of cash benefits for two children 1979-1998

Within the last two decades, eight out of the ten countries analysed - the exceptions are the Netherlands and Poland - combined the two instruments of social policy in order to realize public family support. Comparing their relative weight across the countries considered, graph 4 suggests that general child tax reliefs are predominantly legislated with the intention to supplement the cash benefits. Austria, Belgium, and the Czech Republic provide tax credits (Austria and Belgium) resp. tax allowances (Czech Republic) that equal about one quarter to two fifth of the monetary transfers. In the case of France, the graph does not represent an empirically existing fiscal regulation. The French family splitting system rather demanded a simulation in order to arrive at a fairly precise estimation of the financial advantage linked to the family coefficient. The quotient of about 60 to 70 percent (1985-1998) should be considered as a minimum share. Important fiscal benefits are only available to French, German, and Luxembourg (cf. above for futher explanations on Luxembourg) families with income from employment on the APW level. The 100 percent share in the case of Germany during 1996 to 1998 is explained by the OECD-classification of familyrelated tax reliefs according to their functional logic in order to arrive at the net family income . The rather stable relative shares of child-related tax reliefs in most of the countries across time make it plausible to assume that the measures of fiscal welfare are rather regularly upgraded. Provisions for indexations of tax brackets, basic exemptions and tax reliefs are empirically widespread in order to 'protect' taxpayers against a (sustainably) weakened relative income position due to inflation .

Comparison of married single earner with single person

The extent to which children are accounted for in the national income tax systems can be estimated based on a juxtaposition of the relative tax treatment of married couples with children with that of single childless persons. In all countries, married couples pay (considerably) less taxes than single persons with the same gross earnings. Empirically, the span is rather high. The relative (total) advantage basically ranges between 11 to 17 percent in Switzerland (during the two decades), 14 to 16 percent in the Netherlands (during the whole period) and Germany (until 1985), and above 35 percent in Belgium (1990s) . For Austria, the difference is fairly stable, amounting to about 25 percent. A high stability can be observed for Luxembourg, too, on an even slightly higher level (30 to 33 percent). The income surplus shows more step changes in the Czech Republic and Hungary, where the fourhead household was able to live on about 20 to 30 percent more income than the single person during the second half of the 1990s. It is surprising that the difference is narrowest in Poland, amounting to merely 10 percent. Whereas Poland and Switzerland combine a rather negligible relative (in cash) advantage for families with a comparatively low income tax wedge, Austria and Belgium both apply high average tax rates (including social contributions) and provide substantial tax reliefs and cash benefits for families.
These variations in the quotient of tax liabilities are more pronounced at lower income levels where the effects of exemptions and other spouse- and child-related allowances predominate, whereas at higher earnings levels the increasing marginal tax rates (on the assumption that progressive tax schedules exist, as they do in all countries under investigation) become most important, narrowing these differences. The relative advantage of families also depends on the definition of the tax unit (joint or individual filing of spouses or even children) and the usage of mechanisms of income splitting amongst spouses or family members .

Graph 5a: Child-related income surplus of married one-earner couple with two children compared to a single person without children as share of his/her disposable household income, 1979-1998

Graph 5b: Child-related income surplus of married one-earner couple with two children compared to a single person without children as share of his/her disposable household income, 1979-1998

Graphs 5a and 5b represent the relative advantage in disposable household income which can be attributed to those regulations of the tax-benefit-system taking into consideration the presence of children. Other factors accounted for by the OECD which could produce different outcomes under the assumptions made above, are the tax-benefit rules related to (non-working) spouses as well as the fiscal treatment of social security contributions and work-related expenses . It goes without saying that both tax unit and tax schedule play a key role, too. However, it would go beyond the scope of this contribution to engage in any estimations of the combined influence on the differences in net family income.
Comparing the percent income surplus left in the pocket of the one-earner couple with two children, a first difference becomes obvious. In about half of the nine countries included in the analysis - Germany, the Netherlands, Poland, and Switzerland - all childrelated provisions of the tax-benefit system globally contribute to a higher disposable income of only about or below 10 percent. The income surplus amounts to about 20 to 25 percent in Austria and Belgium and oscillates around 16 percent in France. In other words, the relative advantage since the mid 1980s had amounted to about one sixth, taking the net disposable household income of the single person as the line of reference. Even if the clearly more advantageous position of families by the mid 1990s continuously tended to erode in the Czech Republic and Hungary, families are still considerably favoured. In 1992, Hungary had even reached a maximum distance of about 43 percent: Where the single person 'ends up' with 100 units of net family income (in national currency), the tax-benefit-system attributes 143 units to the one-earner couple with two children. Taken all together, this underlines the globally important income effect related to the child-related provisions in the tax-benefit system and the monetary transfers.

Graph 6a: Child related shares of income surplus of married one earner couple with two children compared to single person without children as share of his / her disposable household income by instrument of family policy, 1979-1998

Graph 6b: Child related shares of income surplus of married one earner couple with two children compared to single person without children as share of his / her disposable household income by instrument of family policy, 1979-1998

Graphs 6a and 6b present information that allows for a more comprehensive evaluation of the combined effects of child allowances and fiscal advantages as well as of their relative 'contribution'. The bars in the histograms indicate to which extent child-related stipulations in the tax-benefit system account for the differences in net household income when a married couple with two children and one income is juxtaposed to a single person without children. The relative proportion 'occupied' by cash benefits or tax benefits within each bar shows how the two instruments of family policy 'interact' in order to 'generate' the income surplus.
Within this context, Austria, France, and Hungary on the one hand and Germany on the other represent the two poles. Whereas in the three countries listed first the general child-related provisions of social and income tax legislation accounted for about 75 to 98 percent of the income difference between the two types of households analysed during the last two decades, the graph for Germany clearly reflects the decisive 'position' of the income splitting amongst spouses in relation to the global functioning of the integral tax-benefit-system. The joint spouse taxation in Germany provides a financial advantage of a weight quasi comparable to the joint effects of the income transfers and the stipulations of the income tax code for children. All other countries can be 'anchored' along this continuum according to the relative importance of cash and tax benefits for children compared to all other possible procedures to differentiate between a married one-earner couple with two children and a single childless person.

Interplay of general cash and tax benefits for children

Before we consider the interplay of general cash and tax benefits with these questions, let us recall the central questions: Is it possible to depict a logic regarding the coordination of cash and tax benefits? Are the tax reliefs conceptualized in such a way that they supplement the monetary transfers or do they rather play an 'independent' role? Have cash and tax benefits been substituted? To which extent does the inclusion of tax reliefs for children alter the relative importance of public income support compared to the analysis exclusively based on monetary transfers? Finally: Will the broader perspective suggested in this article make it necessary to reformulate the insight gained in terms of principal institutional patterns and major tendencies of convergence and divergence between clusters of countries, based on an analysis of monetary support given to families, only?
In my opinion, it is not possible to find a clear pattern of coordinated action by means of transfer and tax systems, both in a comparative perspective and across time. As a rule, the tax reliefs are rather considered to be a tool to supplement the cash benefits. Only in France, Germany, and Luxembourg tax allowances and tax credits have greater independent weight. A ‚popular strategy' is to compensate for the abolition of tax allowances by means of an increase in the benefit rates of family allowances. Austria (in 1978) and Germany (1975) are good examples. For some countries, the patterns generated on the basis of a separate quantitative and qualitative analysis of child benefit payments are more or less reproduced. This holds for Austria, Belgium, France, and Luxembourg. All four EU member countries always 'come in' above the average. Rather often, they even 'end up' in the top positions as regards public family support by means of the tax-benefit system, i.e. all countries offer rather generous general cash and tax benefits to families with children. This result seems to be strongly linked to an institutional tradition they share, i.e. the organization as a separate branch of social insurance, deeply inspired by the concept of a family wage/salary. In all of these countries except for Luxembourg, the benefits paid in a first phase after the implementation of the family benefit schemes already reached a comparatively high level. The countries with a universal scheme were not able to 'catch up' with this relative advantage before the early 1990s - if at all. Other clusters did not become obvious. Especially for the monetary transfer systems classified as ‚unfragmented' systems above, one can hardly identify a basis for 'predicting' which major institutional regulations will be the decisive ones. Here, Germany is a good example. Across time the mixing of instruments was subject to several changes. In addition, the relative weight of cash and tax benefits was rather often adjusted.
One common property as to type of tax relief and tax basis should not be overlooked, however: countries that apply a joint taxation of spouses either seem to favour child tax allowances or have enacted a family splitting system. From this perspective, France, Germany, Luxembourg, and Switzerland are grouped together. The background variable shared by these countries is the tax unit, itself influenced by the dominant concept of family (obligations). The national fiscal legislation focuses on the family or household, which are perceived as a unit of shared income and consumption, and not on the individual adult. One can find additional support for this hypothesis in extending the geographical scope to include Portugal, e.g. The only country that does not fit into this logic is the Czech Republic, where the individual assessment of income for spouses is combined with child tax allowances. This feature has, however, to be seen in the light of an institutional tradition dating from the socialist era, namely to tax couples individually.
It might be too audacious to bring into play a last element. The Czech Republic, Germany (at least until 1995), and Switzerland have implemented a double-track system, aimed at increasing the family income via child benefit and intended to guarantee an existence minimum of children exempt of taxes via child tax allowances. If need be, poorer families are additionally supported by locally administered social welfare benefits, in the Czech Republic by means of the guaranteed existence minimum (životní minimum/sociální príplatek), in Germany via social assistance (Sozialhilfe). Offering rather generous monetary transfers and tax credits, the French-speaking countries and Austria seem to favour an instrument-mix which integrate stronger redistributional elements already into the family support system in a proper sense.
Based on the analyses undertaken, it is not easy to arrive at a well-grounded classification of the not yet 'consolidated' policies in Hungary. Both sustained deficits during the phase of economic system transformation and the lack of an institutional tradition of child-related fiscal welfare after World War II have resulted in a continuous succession of changes. Since 1996 the configuration has become more stable, as in the case of the Czech Republic. Both countries put a considerable emphasis on this social policy function already before 1990 and rather continue to do so - in contrast to Poland which seems to share more common properties with Portugal, e.g.. No outlayers can be identified for the Netherlands. As to the public family support by cash and tax benefits and the effects of the tax-benefit system they occupy a rank in the middle of the scale. The relatively smaller shares of monetary transfers and fiscal advantages in Switzerland should be more than compensated for by high average gross wages and a comparatively low total tax wedge. In other words: The relative 'deficits' of the direct system of financial family support are likely to be fairly well counter-balanced by comparative advantages brought about indirectly (e.g. by means of level of earnings) or influenced by context factors (e.g. by the design of system of social protection).

Notes

1 For the purpose of this article, the terms 'family allowances' and 'child benefit' are used synonymously.
2 In Belgium, the scheme has been administered by the National Institute for Family Allowances for Salaried Workers and Employees (Office Nationale d'Allocations Familiales des Travailleurs Salariés/ONAFTS) since 1944. In France, the former National Union of Family Allowances Funds (Union Nationale des Caisses d'Allocations Familiales/UNCAF) was reorganized in 1968 and renamed National Family Allowances Fund (Caisse Nationale d'Allocations Familiales/CNAF). As regards Luxembourg, the four existing agencies were merged to form one National Family Benefits Fund (Caisse Nationale des Prestations Familiales/CNPF) in 1985.
3 Cf. e.g. Laroque 1985 for a detailed, chronological description.
4 The deep decrease of the real value of this social benefit 'was a far greater problem than making it dependent on a certain level of income. By 1996, the real value of family allowance received by a family with two children was only 40 percent of its value compared to 1990; in case of a family with three or more children, it was 45 percent' (Tárkányi 2001).
5 'Haunted by hyperinflation, the beginning of the transition period brought about changes in the principles for granting the family allowance. No longer quota-based, it was linked to specific parameters and amounted to 8% of average wages. (…) The decline in wages was so dramatic that the parameter-based identification of the amount of the allowance was soon withdrawn. In 1992, the allowance stood at 7% of average net wages. The amount was not indexed and at the time annual inflation was running at 30%. (…) To date, identified amounts are indexed once a year in line with the price increase index. Due to the fact that Polish wages have dramatically increased since 1994, price indexation of family benefits has had a negative effect on the benefit-to-wages rate. After two years, the value of the benefit had fallen to approximately 6% of average wages' (Golinowska 2001).
6 'The ascription of certain sums of money to specific age groups (…) rests upon economic research which is done repeatedly' (Kuijsten/Schulze 2001).
7 The instrument of linking family allowances to the income level is commonly used by all southern European EU member countries. Incometesting, grading by income groups and withdrawal of benefit payments above a certain limit is in force in Italy and Spain. Greece and Portugal operated with a progressive reduction according to an increase in household income in 1998.
8 The only exception is Germany. Even if no income test had been applied for familes with only one child ever since the entitlement to the child benefit was extended to include children of birth rank 1 in 1975, thresholds were reintroduced in 1983 for families with 2 or more children. As in France one and a half decade later, they were fixed on a relatively high level. Until 1995 a progressive reduction according to an increase in household income was applied, however, concerning rather affluent families only. The enactment of this measure had been pushed by considerations concerning both cost containment and more adequate targeting.
9 The following ECU amounts were paid to entitled families with three children in 1998 on a monthly basis (without possible age supplement and disregarding possible income thresholds): A: 260; B: 371; CH (canton of Zurich): 201; CZ: 71-103, depending on age group; D: 331; F: 335; H: 149; L: 478; NL: 204; PL: 65 (MISSOC 1999; OECD 1999; Maucher/Bahle 2000). They are adjusted for purchasing power parities.
10 This measure clearly is rather sensitive to economic growth rates and the apportionment of the net national product at factor cost by type (gross earned income from employment, entrepreneurial income, and property income As we do not use deflators in order to determine both the national income's and the child benefit's value at constant prices, we have to argue cautiously as regards the specific impact of general cash transfers to families on the varying shares.
11 They were discontinued as early as 1938.
12 In all graphs presenting cash benefits, the data for Switzerland exclusively refer to the canton of Zurich. Since the introduction of child benefit payments in 1958, the 'size' of benefits provided by the cantonal family allowances fund has always been quasi identical with the Swiss mean. The data can therefore be considered to be highly representative for the whole country.
13 'Despite the major economic cycles, demographic shifts, and financial problems of the welfare state over the last thirty years, family allowances remained important and benefits have kept pace with rising incomes' (Bahle 2001) due to regular adjustment for inflation.
14 The following ECU amounts were paid to entitled families with two children aged 15 in 1998, i.e. including possible age supplements, disregarding possible income thresholds: A: 206; B: 224; CH (canton of Zurich): 134; CZ: 22-71, depending on age group; D: 197; F: 261; H: 40-78, depending on family income; L: 271; NL: 137; PL: 38 (MISSOC 1999; OECD 1999; Maucher/Bahle 2000). They are monthly benefits, standardized by purchasing power parities.
15 It was only in the 1990s that Finland, Norway, and Portugal introduced benefit increases for children below age 3 (for details cf. Bahle/Maucher 2001). Their enactment is grounded on the consideration that higher expenses for baby equipment, especially for the first child, should at least partly be compensated for.
16 Having principally excluded the former Czechoslovakia, Hungary, and Poland from the analysis on the relative importance of family allowances with reference to the average gross wages, the following data are intended to give a certain idea on the relevance of child benefit payments for one of the central European OECD member countries for the phase prior to 1990: Until 1960, the average amount of had stagnated and then was increased significantly. 'Already in 1980, it was remarkably high, even in international comparison' (Tárkányi 2001). The child benefit made up for about a quarter of the average wages, compared to 15-20 percent in other socialist countries. The exact values for a couple with two children for the period 1950-1998 are as follows: 1950: 5.9; 1955: 6.6; 1960: 4.8; 1965: 11.3; 1970: 14.0; 1975: 20.8; 1980: 24.4; 1985: 24.2; 1990: 34.3; 1995: 20.6; 1998: 16.6. With an additional child, these shares - up to 1990 - increase remarkably, which clearly underlines their economic importance for larger families: 1950: 9.7; 1955: 15.8; 1960: 22.9; 1965: 20.4; 1970: 23.8; 1975: 33.3; 1980: 49.3; 1985: 43.0; 1990: 54.5; 1995: 23.8; 1998: 21.8. (Based on Tárkányi 2001)
17 The financially more advantageous position of employees is a feature common to all six countries included into the analysis. The cross-country variations represented in graph 2b are consequently linked to different relative weights of economic sectors in a country as well as to three ratios: workers/employees, male employment/female employment and full-time work/part-time work. Their branch-specific combinations summed up across all sectors then determine the wage differential as reflected in the mean values for the two occupational groups. Since the mid 1970s resp. mid 1950s, the distance as regards labour market income between those two occupational groups as a whole became narrower in France (1975: 1.34; 1995: 1.07) resp. Switzerland (1955: 1.63; 1975: 1.54; 1995: 1.22). In Austria (1955: 1.61; 1995: 1.49), Belgium (1965: 1.73; 1992: 1.52), and Germany (1955: 1.51; 1995: 1.29) the gap had been bigger during the 1950s and 1960s. Since then it has tended to decrease. The Luxembourg employees, however, have continuously increased their relative financial advantage during the last two decades (1978: 1.39; 1998: 1.89). The values in parantheses are the multipliers to be entered into the equation in order to arrive at the average income of employees, given the average income of workers.
18 Several inquiries into the income tax treatment of families in OECD countries have underlined the lack of consistency in terms of how the particular characteristics of the family are taken into consideration in determining tax liabilities differentiated by house-hold type/family composition. Several major topics in cross-country analyses of family taxation can be distinguished. Most of them centre around the issues of marriage neutrality, horizontal equity between married couples - in case the spouses contribute to the family income at a proportion different from 50 percent each -, and progressiveness of the tax schedule (Pechmann/Engelhardt 1990; O'Donoghue/Sutherland 1998; Dingeldey 1999 and 2000). Following the tradition of both labour economy research and welfare state analysis which focuses on gender differences, a major concern consisted in identifying incentives and restrictions for female labour market participation associated to specific models of welfare states and sets of social policies (cf. OECD 1977; Cnossen/Messere 1990; Parker/Sutherland 1991; Dingeldey 1999 and 2000; Soler Roch 1999). Based on helpful systematizations of tax base and tax rate issues related to marriage, cohabitation, inheritage and children (Cnossen/Messere 1990; O'Donoghue/Sutherland 1998), several pieces of research contributed to a clearer understanding of the rather complex and nontransparent effects of different taxation systems and specific income tax regulations on disposable household income of different types of families with children. They helped to explain which distributional effects the national tax-benefit system produce with regard to the net income of two earner vs. one-earner married couples. However, they did not systematically link child-related tax with cash benefits, as e.g. Stropnik et al. (1996) in comparing the 'global performance' of governmental support of families in Austria, Croatia and Slovenia during the 1990s. They show how standard tax reliefs (basic and dependents-related) are reflected in the individual/family tax burden, and what is the joint impact of tax savings and child benefits on family disposable income.
19 Other child-related deductions or exemptions, e.g. for children with specific needs due to a handicap, for children of single parents or costs of child care outside the family are left aside.
20 The analyses are mainly based on OECD data and information (OECD 1977; {1}-{3}; 1999); they are supplemented, however, by several other sources (IBFD 1990-2000; Lohaus 1997) in order to fill gaps or to resolve inconsistencies.
21 The Luxembourg income tax code, e.g., used a coefficient of 3.4 in 1984 for a couple with two children, which was even increased to 3.8 in 1990. Since the establishment of the family splitting, France has operated with a factor of 3 for the same household type. The family splitting approach noticeably reduces the taxable income which is divided by this family quotient and then applied to the tax schedule in the same manner as for a single person. 'Total tax for the unit is found by multiplying this calculated tax by the family quotient' (O'Donoghue/Sutherland 1998: 45).
22 After having discontinued the family splitting system, the maximum income effect of the tax credit is limited to a maximum amount, equal to about 140 percent of the corresponding family allowances for two children in 1991. It had decreased to about two thirds of the cash benefit in 1998. As early as 1981, the French legislator had fixed a maximum advantage related to the child's coefficient which - during the 1990s - amounted to about 220 to 290 percent of the estimated effect for an APW as represented in graph 3.
23 Portugal e.g. is a counterexample. (At least) During the 1980s until their discontinuation in 1988, the child tax allowances were increased for children aged 11 and older.
24 'Tax relief' is used as a generic term to cover all the means of giving favourable income tax treatment to persons in gainful employment, married or cohabiting couples and heads of families for their children or other dependent relatives.
25 Tax credits are amounts which a tax payer may subtract from his/her tax liability, once gross taxes have been calculated. Most commonly applied to fixed amounts, their value (under this hypothesis) does not depend on income. Tax credits are considered an instrument in order to arrive at more vertical equity. Consequently they rather serve distributional purposes.
26 Family coefficient taxation involves the aggregation of income within the tax unit. 'Total taxable income is divided by a family coefficient and then applied to the tax schedule in the same manner as for a single person. Total tax for the unit is found by multiplying this calculated tax by the family coefficient' (O'Donoghue/Sutherland 1998: 45) to arrive at the family tax liability. Tax splitting amongst spouses - as applied, e.g., in Germany since 1957 (Ehegattensplitting) - can be interpreted as one special case in family splitting systems, using a coefficient of 2.
27 Except for the period 1975-1982, it had been under operation since the mid 1950s.
28 For families with a high income - i.e. for taxpayers with a marginal rate of at least 38 percent, i.e. about 5% of the families entitled to child benefit in 1998 -, the rationale (solution) is to opt for child tax allowances for children of birth rank 1 and 2. For all subsequent children the amount of the child benefit is equal to or higher than the fiscal effects brought about by the tax child allowance. For income subject to the highest rates within the progression zone - reaching a peak value of 53 percent in 1998 -, the child tax allowance represented a maximum advantage of around 300 DM per head (cf. Wingen 1997: 233). According to the legislator's intention, it is exclusively the amount left over, having ensured a 100 percent exemption of children's existence minimum at whatever income level, that is earmarked for redistributive purposes.
29 'Tax allowances are amounts substracted from the tax base - i.e. the incomes which are taxable (remark by the author) - to arrive at the income on which tax is levied' (O'Donoghue/Sutherland 1998: 46). This instrument, synonymously often called 'tax deduction', generally is a main pillar of systems with progressive income tax schedules, i.e. 'the set of thresholds and tax rates that determine the amount of tax collected from a specific taxable income' (O'Donoghue/Sutherland 1998: 46). As to their effects, they can be thought of as zero-rate tax bands, too. Based on the 'ability-to-pay-principle' tax allowances focus on horizontal equity and efficiency. Their rationale follows a 'tax capacity approach', i.e. the tax schedule is only applied on income in excess of the subsistence income. Child-related tax allowances aim at compensating for family obligations at the marginal rate of the individual tax payer. This is why their implementation asks for a integral view on the tax and transfer system.
30 'Some cantons (eight cantons in 1973, nine in 1995) provide tax allowances for children which are progressive by parity, an obviously pronatalist feature. A smaller sample of cantons (...) entitles parents to tax credits. There is no clear pattern that would explain which option is chosen by a canton. Again, the quantitative development is highly correlated with economic growth and indicates no marked increase in family-related transfers' (Fux 2001).
31 It builds upon the benefit's design as 'guaranteed transfer' for all families - a functional equivalent to a ‚refundable/non-wastable tax credit'. According to the revised system of equalizing family burdens, it is provided in form of a tax credit. The entitlement to a tax allowance worth a higher amount is only given to families in the upper decile of the income distribution for children of birth rank 1 and 2.
32 Even in Germany, both child benefit and child tax allowance have been regularly upgraded in line with the existence minimum since 1996. For more detailed information cf. OECD 1977, 1978/1980, 1980/1981/1982/1983, various years, 1999; Cnossen/Messere 1990; IFBD, various years; O'Donoghue/Sutherland 1998).
33 Those values are obtained by multiplying the percent shares in graphs 5a and 5b with the quotients of income surplus related to the presence of children, as reflected in graphs 6a and 6b.
34 Wheras Austria, Belgium, the Czech Republic, Hungary, the Netherlands, and Poland had implemented a separate assessment of individuals in their national income tax codes - implying no advantages for single earners -, Germany, Luxembourg, and Switzerland operated with a system of a joint assessment of spouses in 1998. As to the effects, the same can be said for France which used a joint assessment of the house-hold/family members. In this year, France has been the only European country to (still) apply a family splitting system. Regulations on joint assessment as a rule go hand in hand with a broader definition of family and family obligations in family and social law, as it is the case e.g. for Germany. If a tax system is to realize a maximum neutrality towards marital status, labour offer and the division of time spent with child raising, then separate assessment is the only solution.
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The author thanks Thomas Bahle, MZES, and Claus Wendt, University of Heidelberg, for critical, helpful comments. He is indebted to Stefan Kühner, MZES, for data collection and analysis, as well as especially for the production of the graphs.

Mathias Maucher
Mannheim Centre for European Social Research, EURODATA/AB I
L7,1, 68131 Mannheim
Tel: 0049(0)621-181-2830
Fax: 0049(0)621-181-2834
E-mail: mathias.maucher@mzes. uni-mannheim.de

Mathias Maucher has graduated in administrative sciences and works as a researcher at the EURODATA Research Archive. He is manager of the MZES/EURODATA Family Policy Database. In a joint ILO/EURODATA project he works on establishing a database on ILO's inquiry 'The Cost of Social Security'