Impact of Increasing Child Tax Credit on Family and State Budgets

This study evaluates monetary effects of an increase in Czech tax credit by CZK 500 per month for the second child and CZK 900 per month for the third and each additional child. The analysis uses a microsimulation model and survey data SILC 2011. The decline in government revenues from taxes due to these changes is estimated to be CZK 4.7 billion annually, with almost one third of the total budgetary costs (CZK 1.5 billion annually) going to families with children in the upper half of income distribution. The average household with more than one child would save approximately CZK 7,300 per year. While the poorest households with more children would gain on average only CZK 2,900 per year, wealthier households with more children would gain CZK 7,000 to 9,000 per year. There is a high share of low-educated and often single-earner households among the poorest households, who gain the least from this change. Increasing the child tax credit would also lead to an increase in the already very high tax differentials between men and women and differences in the taxation of childless people and married couples with children.

Keywords: TAXBEN model, tax credit, impact evaluation, Czech Republic