Economics in a picture
The minimum income, the child benefit, and the child tax deduction represent 15% of the income of the 10% poorest families
In Portugal, the child poverty rate reached 20% in 2020. The Portuguese tax and benefit system includes three main policy instruments that reinforce the income of families with children: the minimum income, the child benefit and the PIT child tax deduction. On average, the equivalized disposable income, i.e adjusted by household composition, would drop by 2% if these three measures were not in place. However, the negative impact experienced by the 10% poorer families (first decile) would be significantly stronger, decreasing by around 15%. Without these instruments, the percentage of children at risk of poverty would increase by 7.4 percentage points.
The minimum income and the child benefit are particularly important to support the income of the poorer families, which is related to the higher progressivity of these social transfers. On the contrary, the child tax deduction, associated with the personal income tax liability, is more equally distributed across income deciles. For a budgetary cost amounting to 0.1% of GDP, the child benefit is the instrument that generates the highest reduction on the child poverty rate, while the minimum income achieves the highest drop of the poverty intensity of families with children.
For more details, see Narazani et al. (2022), “The role of family social transfers in reducing child poverty in Portugal”, Banco de Portugal Economic Studies, Banco de Portugal, Vol. VIII, No. 4, pp 1-26.
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