Purpose: They are designed to help parents defray the costs of child rearing, generally, or more specifically, to help pay the costs of child care and education. Like family allowances, tax benefits have one or more of the following benefits:

• horizontal equity - the redistribution of income from childless households to families with children, in recognition of the heavier financial burden incurred
  by child-rearing.
• vertical equity or redistribution- supplementing the incomes of poor and modest income families with children as a means of reducing or preventing
  poverty.
• strengthening labor force attachments - in some countries, benefits are only available to families with children who have at least one parent in the
  work force, or higher benefit levels are offered to families attached to the labor force.
• social inclusion/exclusion - particularly as the European Union moves toward greater unity among its member states, family allowances are viewed as
  an instrument that can foster societal cohesion and progress.

History: They were developed largely in the post-World War II years as a device for supplementing the incomes of families with children without being visible in public social expenditures. Initially, they benefited higher income families more than lower because the tax allowances reduced taxable income and thus were only of value to families who paid taxes. The development of a "refundable" tax credit made it possible to use the tax policy instrument to aid low income families as well. In recent years, there has been increased use of the tax system, with specially targeted tax benefits providing income supports to families with children and in some countries, as a means of delivering child and family allowances.

Definitions:

Tax Deduction or Allowance: the amount subtracted from the taxable income base before  calculating tax liability. The value of the allowance depends on the marginal rate of taxation and  is of greater value to taxpayers with higher incomes. Allowances may be transferable between spouses.

Tax Credit: is a reduction in tax liability after assessing tax obligations. The value of the credit  may vary according to family size, family composition or marital status, and the credits may be transferable between spouses. The tax credit may be refundable to benefit those families whose  income is below the level of  taxable income.

The following tables are available to view and print in pdf format.

• Table 1.91: Family-related tax allowances and tax credits in European Union countries

• Table 1.92: Family-related tax deductions and reliefs in European Union countries

• Table 1.93: Types of family taxation in European Union countries

For an overvew of family and child allowances and tax benefits, see Issue Brief on child and family tax allowances and tax benefits.

• Table 1: Child and Family Cash and Tax Benefits in Select Industrialized Countries

• Table 2: Child and Family Allowance Requirements and Variations

• Table 3: Recipient of Family Benefits According to Type of Benefit in Select Countries

See country specific profiles in the Countries section for description of child and family tax benefits in other countries.

References

Cathal O'Dohoghue and Holly Sutherland, "Accounting for the Family: the Treatment of Marriage and Children in European Income Tax Systems," Innocenti Occasional Papers, (Florence, Italy: Unicef International Child Development Centre, 1998).

Organisation for Economic Cooperation and Development, Taxing Wages 1979/1999: Taxes on Wages and Salaries, Social Security Contributions for Employees and their Employers, Child Benefits, 1999 Edition (Paris: 2000), CD-Rom. Child Support (Advanced Maintenance)

Joseph A. Pechman and G.V. Engelhardt, "The Income Tax Treatment of the Family: an International Perspective," National Tax Journal (U.S.), Vol. 43, No.1 (1990), pp. 1-32.

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