# **VI. What is the impact of recent changes in taxes and benefits?**

Since 2014, the government has implemented changes to the tax and transfer system, with the recent introduction of the Family 500+ program being the most important. Going forward, proposals to reform the tax system are being considered, aiming to make it more progressive. This section presents simulations for these changes, with a focus on the overall impact on poverty and inequality. Although we present initial estimates of the fiscal cost of each of these measures, it is important to note that the sustainability and labor incentive effects are not considered in this paper, although they could be substantial, and should be carefully considered in conjunction with the results presented below.

## **Family 500+ Program**

Facing one of the lowest fertility rates in the EU, the Government of Poland has recently introduced a new Family benefit program with two formal objectives: (i) to encourage fertility, and (ii) to reduce child poverty. The Family 500+ program was rolled out in April 2016 and consists of a monthly payment of PLN 500 (€115) for every second and subsequent child until the age of 18. The benefit is also extended to the first child in families with income per capita below PLN 800, or below PLN 1,200 (€274) if there is a disabled child in the family. The program does not include an income threshold for high income earners, and payments are to be administered by municipal social assistance units based on the funding from the State Budget.

Since this benefit was extended to all children, not just those born after the program began, this represents a relatively large increase in transfers to households in Poland. Importantly, the Family 500+ benefit is designed to be on top of any other existing social assistance benefit received by the household (such as family benefits, housing allowance, other social assistance, or payments from the alimony fund) and will not influence the eligibility to these aforementioned programs. Eligibility into the program for farming households, will depend on the amount of land owned by the family and the standardized income per hectare announced by the Polish Central Statistical Office.

In order to simulate the distributional impacts of the Family 500+ program, we classify household members into families using the program eligibility rules.<sup>17</sup> As described earlier for the analysis presented above, sampling weights from the HBS were calibrated as in Myck & Najsztub (2015) in order to account for differences on the number of children between the HBS and the census. Moreover, since the survey reports income at the household level, in order to obtain family per

> 17 A family includes the parents of the children, the spouse of the parent, caregiver of the child, and children up to 25 who reside with the parents and who are economically dependent on the parents. A family may also include children older than 25 provided that these are disabled and due to their disability are eligible for caregiver allowance. Children will not be considered as a part of the family if the child is married, or if the child is older than 18 and already has a child of his/her own.

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