Road Testing Child Benefit and Social Assistance Reforms: Critically analysing the trilemma between poverty reduction, public expenditure and work incentives

In this working paper, we critically analyse the trilemma between poverty reduction, social expenditure and work incentives, based on a set of simulated policy reforms designed to reduce poverty among families with children. We find that the simulated reforms demonstrated that poverty reduction is possible through increasing child benefits and social assistance. The reforms were typically associated with an increase between 1% and 3-4% of social expenditure. We found that most reforms were associated with reduced work incentives, but that the changes in the participation tax rates tended to be small: the child benefit reforms usually resulted in an increase of around a few percent. For a set of reforms, we have demonstrated the relevance of attempting to quantify this trilemma. While indeed the results indicate the existence of such trilemma, in particular the aspect of work (dis)incentives may not be an unequivocal barrier to poverty reduction.