CHILD SUPPORT REFORM: SOME ANALYSIS OF THE
1999 WHITE PAPER
By Gillian Paull (IFS), Ian Walker (Warwick
and IFS), and Yu Zhu (Keele) (CS 43)
PRE-REFORM:
CS is a proportion (which is variable) of combined
incomes (net of housing costs)
Bad points:
Complicatedrequires lots of information
that may be hard to verify.
No IS disregardpotentially bad for CS
compliance.
Imposes a tax on the earnings of the CP (biggest
for low income working CPs) and this is bad for CP's work incentives.
Imposes a (often large) tax on the earnings
of the AP and this is bad for work incentives and gives rise to
an incentive to understate/conceal earnings.
High levels of liabilitybad for compliance.
Large tax on the income of the AP's partnerbad
for remarriage incentive.
Cross subsidizes each parents' housing costs
and so gives rise to an incentive for both parents to inflate
their housing costs.
Limited enforcement powers in practice.
CSA concentrated on cases with lowest incentives
to comply.
CSA underfunded (30 per cent less than Australian
CSA).
Good points
FC/HB disregards but no IS disregardgood
for work incentives.
Complex formula good for matching CS liabilities
to needs and to ability to pay.
High levels of liabilitiesgood for child
poverty and good for incentives to remain partnered.
Largely ignores stepchildrenpromotes
fairness and implies that children are for life and not just until
the CP remarries.
POST-REFORM:
Proportion (which varies) of the income of the
AP only. IS disregard. Lower liabilities.
Good points:
IS disregardpotentially good for compliance.
Lower liabilitiespotentially good for
compliance.
Neutral with respect to housing costs.
No tax on AP's earningsgood for work
incentives.
Unlimited disregard for FCgood for work
incentives.
Simpler formulaeasier to administer,
potentially good for compliance.
Better enforcement powers.
Bad points:
IS disregardbad for work incentives.
Lower liabilities, larger welfare paymentsbad
for the average taxpayer.
Double dividend for step-children.
Weaker relationship between liabilities and
needspotentially unfair and bad for compliance.
Lower enforcement resources.
EVIDENCE
US
US APs (Fathers) are better off after separation
than before in terms of "equivalised" incomes.
US CPs (mothers) are substantially worse off
after separation.
US CS has a large impact on child poverty amongst
the children living with the mother.
US CS has only a small adverse effect on child
poverty in "second families".
Those US states that dropped the CS disregard
in their welfare systems (AFDCthe US equivalent of IS)
have not suffered a fall in compliance relative to those states
that kept the AFDC CS disregard.
Some US evidence that enforcement expenditure
promotes compliancean extra $100 pa per AP on enforcement
raises compliance by one per cent.
Compliance seems very sensitive to APs perception
of the "fairness" of the liability.
UK
UK econometric estimates of determinants of
compliance suggests that large liabilities do not lower compliance.
UK (naive) simulations of work incentive effects
(on lone mothers onlyie excludes the repartnered):[2]
Proportions: |
Not working | Part-time
| Full-time |
Pre-reform, FC | 52.7 | 21.9
| 25.4 |
Pre-reform, WFTC | 50.4 |
24.4 | 25.2 |
Post reform, WFTC | 48.7 |
26.4 | 24.9 |
RECOMMENDATIONS
Find out "what works" and how well it works:
More researchmodelling the determinants of compliance
and the effects of reform using information on individuals in
CSA administrative database.
Better dataidentify APs in Family Resources Survey
data, new DSS panel of low income families needs very careful
design.
Build evaluation capability into the implementation of the
reformeg randomise the IS disregard level.
Reconsider the new formula:
Ensure that low income lone mothers are not disadvantaged
and that perceptions of fairness by APs are promoted (by bringing
back the CPs earnings into the formula).
Do not fudge the issues with transition arrangementsthe
next generation of CPs are just as important as the present generation
of CPs.
Put more (not less) resources into the CSA to promote compliancemandatory
and automatic wage withholding.
2
See CS48 Ev. p. 174. Back
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