Public Finance Quarterly Archive Articles

Family Allowance and Pension Dependent on the Number of Children: Optimality and Neutrality

12:58, március 30, 2020.

Reaction to „The Inherent Faults of the State Pension System and the Main Direction of its Improvement” by József Banyár

András Simonovits
researcher emeritus,
Hungarian Academy of Sciences,
Research Centre for Economic and Regional Studies, Institute of
Budapest University of Technology and Economics Institute of Mathematics

Published in: Public Finance Quarterly 2020/1. (p. 31-41.)

Summary: When it comes to the neutralisation of child-rearing burdens by the state, many experts support the introduction of pensions dependent on the number of children (or dependent on child-rearing) instead of family allowance (and tax allowance) (cf. Kovács ed., 2012). The critical review by Banyár (2019) joins this trend. Leaving external criticism aside, I assess Banyár’s plan of reduced pension of childless people and the remaining family allowance in the simplest possible optimisation model. The relative child consumption plays a key role. My main findings: a) in case of a critical relative value (when the total child consumption of the family equals the parents’ consumption), both pension of the childless and family allowance are dispensable; b) in case of a lower child relative value, the reduced pension of the childless is positive, and family allowance is dispensable; c) in case of a higher relative value, the pension of the childless is zero, but family allowance is indispensable.

Keywords: pension system, family allowance, pension dependent on the number of children

JEL codes: H55


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