In 2013, 12,3% of Estonian families with at least one child were living in relative poverty. Even though the EU mean is even higher, this is nontheless quite a high level of poverty when compared to most Scandinavian countries for example. The government’s main method of lowering poverty among families with children is, as in most states, social benefits and policies. As any government’s funds are always limited, the question of cost effectivness arises: which social policies are the most effective at lowering poverty while avoiding negative effects such as lack of motivation to work? The study seeks to answer this question by analyzing 40 different social policy scenarios with the EUROMOD simulation model. The EUROMOD is a statistical model that gauges policy effects on income distribution, employment and the national budget. Following are some of the main findings:
- The most cost-effective way of lowering child poverty among children is to increase their importance in the formulas that determine subsistence benefits. Such a step would increase the number of families that qualify for the benefit as well as the size of the benefit. This finding is also the study’s main policy suggestion.
- Without social benefits, the relative and absolute poverty risks of families with children would be considerably (approx. 7% percentage points) higher.
- Policies don’t affect different age groups of children in the same way. 0-7 year olds would gain most from increased child allowances, 7-12 years olds from increased subsistence benefits and 13-17 year olds from increased single parent benefits. Increased benefits aimed at school aged children would be the most cost effective financial method of reducing child poverty.
- Subsidized child care and child care benefits have roughly the same financial effect on parents.
- It would be reasonable to use a smaller number of different poverty indicators in the national policy-making process.