Eligibility for family tax and contribution allowances in Hungary for each income decile. An attempt to assess the redistributive effect of the domestic family allowance using data simulation
DOI:
https://doi.org/10.15170/MM.2024.58.01.07Keywords:
family tax allowance, inequality, simulation, vetical equityAbstract
THE AIM OF THE PAPER
The study attempts to determine the exploitability and redistributive impact of Hungarian family personal income tax and social contribution alowwance across different income deciles. Its novelty lies in the fact that it does this at the household level rather than examining individual incomes.
METHODOLOGY
For the analysis, I generated a sample of 4,294 households, whose composition and income data correspond to their share in each income decile as reported by the HCSO for 2020. After calculating for each household in the sample the maximum family allowance that could theoretically be claimed based on the number of children and the allowance that could actually be claimed from their income, I compared the results for the deciles.
MOST IMPORTANT RESULTS
While in the lower income deciles the taxable income limits the take-up because of the significantly lower share of active earners, in the highest deciles the number of children is a limit, with their share in the decile being less than 8%. In the lowest income decile, the average allowance used was more than twice as high as in the top income decile among taxpayers, while overall the lowest income deciles received five times as much allowance as the top deciles.
RECOMMENDATIONS
By its very nature, tax relief cannot improve the situation of those without taxable income, so it can only be considered as a fairer burden-sharing between taxpayers. Among taxpaying families with children, single-parent families are in the most difficult situation, with the highest risk of poverty, as only the custodial parent can use the allowance. However, as the latest census data show, the divorce rate is increasing in Hungary. Their situation would be improved if the allowance, which cannot be used because of the low income of the custodial parent, could be claimed from the personal income of the non-custodial parent, at least up to the amount of the child support (either directly to the child or directly back to the custodial parent). This would eliminate the current negative discrimination in the family tax credit for children of divorced parents.
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