In this new working paper, we critically analyse the tax-benefit systems of Belgium, Croatia, Poland, Spain, Sweden and the United Kingdom to understand how well different household and family types are protected against income poverty. To do this we used European tax-benefit microsimulation models (EUROMOD and UKMOD) that gave us information on the taxes and benefits that individuals and households are entitled to according to the policies in each country (for example, income tax, social security contributions, pensions, child benefits, housing benefits, unemployment benefits, and social assistance). EUROMOD allows us to estimate which policies each person and each household might be eligible for, how much taxes they would need to pay, how much benefits they might receive per policy, and then consequently what the household income would be and how that corresponds to their poverty risk. We boost our approach by integrating our novel Families within Household Typology (FHT) so that we can more accurately reflect the complexity of family relations within households in statistical analyses.
Our findings show that full-time workers are not found to be at-risk-of-poverty in any of the countries or scenarios. Single parents at the average wage level are also above the poverty threshold in all six counties but do not fare as well as dual earner couples. However, if we look at single parents with a low wage we see that they get much closer or fall on to the poverty threshold in all countries. In other words, despite working full-time, they are dependent on child- and other benefits to avoid poverty. It is of course important to add that for many single parents working full-time is not even a realistic possibility without sufficient support from other policies such as childcare. For single parents working part time (a reality for many), we found income taxation to be related to part-time working single parents falling into poverty.
EUROMOD also allows us to introduce “shocks” to the income situation of our simulated earners and households to see how well the tax-benefit systems protect our different household and family types, for example in the case of unemployment. We can see that short-term unemployment is compensated reasonably well, at least as long as it is only one partner of a dual earner couple unemployed and if they are eligible for unemployment benefits. However, long term unemployment of both partners or ineligibility for insurance-based unemployment benefits results in an income below the poverty threshold. We also take a particular look at the situation of unemployed single parents in various scenarios. These families may decide to take-up part-time work or move in with grandparents, but our findings show that neither strategy is guaranteed buffer against poverty. The sharing of pension income can reduce poverty in multigenerational households, but we found that this poverty-reduction capacity is lowest in countries where multigenerational households are more common (Croatia and Poland), whereas it is more effective in countries where such households are least common (i.e. Sweden).
All in all, differences between family- and household types tend to be larger than the differences between different countries. This presses the need for tax-benefit systems to reflect and respond to family diversity if they are to act against poverty. Read the full paper here.