Bavarian Family Allowance Lacks Precision in Targeting
ResearchZEW Study on Family Benefits in Bavaria
Only a relatively small proportion of the Bavarian family allowance actually reaches households at risk of poverty. A more targeted approach, such as increased investment in childcare, could provide better support for all families. This is shown by a study conducted by researchers from ZEW Mannheim on behalf of the Green Party faction in the Bavarian State Parliament. With the help of a computer model and causal estimation methods, they examined which population groups profit from the current benefits and how the family allowance is used by recipients. Furthermore, they calculated the effects of different reform options and potential cost savings.
“Contrary to many concerns, adults do not spend the money on themselves, but directly on their children in the form of additional expenses for children’s shoes, clothing, toys, and food,” says Professor Holger Stichnoth, head of ZEW’s “Inequality and Public Policy” Research Group. “However, as the allowance is granted regardless of income, its precision in targeting is limited. By reducing the family allowance for higher-income families, we can enhance the effectiveness of the benefit. The money saved from the higher-income groups can be invested in improving the quality of childcare or creating approximately 25,000 additional daycare places in Bavaria. This benefits all families.”
Family allowance does not discourage parents from working
The introduction of the family allowance did not impact the employment patterns of mothers and fathers, despite the removal of part-time obligations and income limits that were present in previous regulations. Moreover, the implementation of the family allowance, along with the discontinuation of the childcare benefit paid since 2015, resulted in a notable increase in the enrolment rate of children under three in daycare, reversing the previous decline observed during the introduction of the childcare benefit.
Since September 2018, the Bavarian family allowance has been provided in addition to the child benefit, regardless of income, to all families with children aged 12 to 36 months. It amounts to 250 euros per month for the first two children and increases to 300 euros for the third child onwards.
About the ZEW-EviSTA simulation model
With EviSTA, ZEW has an established a microsimulation model at its disposal that has been used in numerous policy advising projects. It models income taxes, social security contributions, child benefits, and in the current project also the Bavarian Family Allowance. With regard to social transfers, the model includes social subsistence benefits SGB II and SGB XII, the federal supplementary child benefit for needy families, and housing subsidies. ZEW-EviSTA makes it possible to comprehensively and differentially track the impacts of changes to the tax and transfer system. Target variables used for private households in Germany include the amount, changes, and distribution of wages, as well as disposable income (including its specific components, such as claims for housing assistance). On the other hand, the effects of the reform on the government budgets are measured as well, in order to provide a mirror-image perspective to the private households. Included in this is the revenue from taxes and social security contributions as well as the costs of governmental transfer payments.
