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Incomes, Incentives and the Growth of Means‐Testing in Hungary
Author(s) -
Redmond Gerry
Publication year - 1999
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.1999.tb00005.x
Subject(s) - microdata (statistics) , economics , microsimulation , incentive , poverty , poverty trap , public economics , income distribution , labour economics , macroeconomics , economic growth , microeconomics , inequality , mathematical analysis , population , demography , mathematics , sociology , transport engineering , engineering , census
The purpose of this paper is to examine the reform of family benefits and the growth of means‐testing in Hungary. From 1996, many family benefits were means‐tested for the first time. A new microsimulation model for Hungary, running on recent survey microdata, is used to simulate the impact of the 1996 reforms on government expenditures, the distribution of incomes, the targeting of benefits and effective marginal tax rates. These reforms are found to be largely benign and even progressive, but they also appear to be paving the way for the further extension of means‐testing. The model is used to investigate such an extension by simulating the impact of a UK‐style system of means‐tested family benefits in Hungary. This system achieves some expenditure savings and better targeting of benefits, but also greatly increases effective marginal tax rates on low‐income households with children. The paper argues that resulting poverty traps may increase child poverty in Hungary in the longer term and cautions against the overextension of means‐testing.