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The impact of the tax relief to families on household income in hungary

• Erzsebet Terez Varga

(2023). ECMS 2023, 37th Proceedings
Edited by: Enrico Vicario, Romeo Bandinelli, Virginia Fani, Michele Mastroianni, European Council for Modelling and Simulation.
DOI: http://doi.org/10.7148/2023
ISSN: 2522-2422 (ONLINE)
ISSN: 2522-2414 (PRINT)
ISSN: 2522-2430 (CD-ROM)
ISBN: 978-3-937436-80-7
ISBN: 978-3-937436-79-1 (CD) Communications of the ECMS Volume 37, Issue 1, June 2023, Florence, Italy June 20th – June 23rd, 2023

https://doi.org/10.7148/2023-0100

Erzsebet terez varga (2023). The Impact of the Tax Relief to Families on Household Income in Hungary, ECMS 2023, Proceedings Edited by: Enrico Vicario, Romeo Bandinelli, Virginia Fani, Michele Mastroianni, European Council for Modelling and Simulation. doi:10.7148/2023-0100

Hungary's family tax system is often criticised for being unequally distributed, favouring high-earners and those with several children. In my analysis, I point out that, according to calculations based on the traditional notion of per capita income, families with four children are the worst off on all incomes, and that families with one child are no worse off than the often envied families with three children, and are, in fact, several income decils above them. However, if we take into account that newer household members require less extra expenditure and apply the OECD statistical methodology, we can see that in the lower income categories, who are at risk of poverty, it is indeed the one-child households who are worse off, while in the middle income categories (median and mean income) it is the two-child households who are worse off.

The study also dispels the misconception that the family tax relief is only fully available to wealthy parents. Even the majority of those in the lowest income decile can take full advantage of the benefit for up to 3 children. The critical situation is, in fact, for single-parent families. Indeed, single-parent families are not entitled to the full benefit for 3 or more children in the lowest income decile.