**The second and third group include those that reduce child poverty or inequality, but not both.** For instance, the Family Birth Child Grant (non-means tested) significantly reduces child poverty but does not have an equalizing effect. Conversely, education contributes to reducing inequality, but its effect on child poverty reduction was not estimated. The same applies to indirect child benefits such as health and GMI social assistance transfers.

**Some interventions have mixed or adverse effects. Subsidies on gas (direct effects) and subsidies on electricity reduce child poverty but exacerbate inequality.** As expected, taxes indirectly negatively impact child poverty, although some, like VAT and oil taxes, positively affect inequality reduction. These interventions are part of the fifth group. The sixth group includes five out of the seven transfers with the smallest size that do not significantly affect poverty and inequality. The Birth Child Grant slightly impacts child poverty reduction, while social assistance and GMI affect inequality.

# V. Simulations of Policy Reforms to Reduce Child Poverty.

**Various countries implement distinct public policies aimed at supporting families with children, all with a common objective of enhancing the well-being of the children.** In this section, we assess the potential impact of the Bulgarian government reforms introduced in 2022 (see Box 1 for details) using microsimulation techniques and the CEQ model. In addition to simulating these government reforms, this paper aims to evaluate several policy scenarios<sup>21</sup> to reduce child poverty in Bulgaria, informed by the maing results of the fiscal incidence analysis presented in section IV.

## **Box 1. Distributional impact of recent reforms to social protection programs in Bulgaria**

In 2022, the Bulgarian government implemented a reform to expand the reach and effectiveness of social support programs. One key aspect involved raising the Differentiated Minimum Income (DMI) threshold to 25% of the national relative poverty line. This change influenced means-tested programs like the Guarantee Minimum Income Scheme (GMI) and the heating allowance. Furthermore, adjustments were made to the monthly meanstested child allowance. Families with children now receive a monthly allowance of 50 BGN for one child, 110 BGN for two, 165 BGN for three, 175 BGN for four, and an additional 20 BGN for each extra child. The tax deduction for dependent children also experienced a significant increase compared to previous years.

According to Robayo-Abril and Cabrera (forthcoming), the DMI changes could potentially reduce national poverty by up to 0.3 percentage points. However, the poverty reduction impact of GMI and the heating allowance on child poverty is higher, reaching up to 0.8 percentage points. Additionally, the reform has the potential to decrease the poverty gap by 0.9 percentage points for the entire population and 1.5 percentage points for children, presenting a significant improvement in the well-being of these vulnerable groups.

On the other hand, our estimates suggest that increasing the monthly child allowance and modifying personal income tax child deductions could reduce national poverty by 1.2 percentage points and child poverty by 2.9 percentage points.

In summary, these recent reforms appear to have a positive impact on poverty reduction. The most significant influence of the DMI reforms is in narrowing the poverty gap. At the same time, child allowance and child tax deductions seem to notably reduce child poverty, with a comparatively smaller impact on overall national poverty.

> 21 Policies expanding education and health spending could have important distributional effects and have the potential to reduce poverty. However, though included in the analysis, they are not part of the policy simulations, as the goal of the simulations was to find options to reduce child poverty and the CEQ methodology does not allow to measure poverty effects of education and health.

41