How could Croatia reform tax-benefit policies for families with children: tackling distributional effects

Abstract

Policies aimed at the family are an important tool for governments to achieve various goals to improve society, manage populations, enhance well-being, and reduce inequality, among other things. Choosing an optimal policy design often constitutes a compromise between different goals and priorities. The Croatian tax allowance for dependent children has often been criticised in the literature for its regressivity, and opacity due to a lack of parliamentary oversight. There is room to improve the child benefit allocation. This research investigates whether Croatia could reform its policies on child benefit and tax allowance for dependent children without increasing the budget, based on family policies that have been implemented in Greece, Germany, the Slovak Republic, Sweden and the United Kingdom. EUROMOD, a widely used European tax-benefit microsimulation model, is used to assess the differences in structure and distributional effects of these 'imported' policies in Croatia. The results highlight that imported policies would make support to families with children more equitable and reduce child poverty.