BUDGET PERSPECTIVES 2018, PAPER 1. SUPPORTING FAMILY INCOMES: GETTING THE BALANCE RIGHT

Savage, Michael and Callan, Tim and Regan, Mark and Walsh, John R. (2017) BUDGET PERSPECTIVES 2018, PAPER 1. SUPPORTING FAMILY INCOMES: GETTING THE BALANCE RIGHT. [Policy Paper]

PDF - Published Version Download (872Kb)

Abstract

Policymakers in Ireland and internationally are faced with trade-offs in the design of income supports for families in and out of work. Policymakers have a strong interest in three key parameters: the level of income support for those without earnings, the rate at which such support is withdrawn through benefit reductions and/or taxes, and the aggregate cost to the Exchequer of income support. However, economic reality dictates that only two of the three parameters can be chosen by policy – the third is then automatically determined. In this paper, we first set out a framework in which these trade-offs can be understood, identifying two distinct forms of work incentive – the incentive to be in paid work, and the incentive to progress (i.e. the incentive to earn more). We then explore how, faced with these trade-offs, the choices made as regards the broad design of family income supports have varied across three countries (US, UK and Ireland) and over time. Finally, informed by this international experience, we consider a number of potential reforms to Ireland’s system of income support for working families. We suggest that the most fruitful direction for policy at present is to focus on the implementation of real-time reporting of payroll information. This will be of value both in diagnosing potential take-up problems related to the Family Income Supplement scheme, and in creating the infrastructure to support new and more efficient forms of in-work benefit.

Actions (login required)