TAX BENEFITS TO FAMILIES WITH CHILDREN

The article deals with theoretical and empirical research of the influence of social tax benefits (allowances) on welfare of families with children in Ukraine and worldwide. International comparisons of basic features and requirements that serve to qualify recipients of the social tax allowance such as income threshold; family size and composition (including relationships, number and age of children); amount of tax deduction (social tax allowance); a tax wedge on labour; untaxed income are carried out. Basic advantages of tax benefits in comparison with direct state aid are generalized in terms of welfare improvement for families with children. Tax benefits are argued to work better as incentives for parents to increase their labour efforts. In addition, they also decrease pressure on working population, lower demand for government expenditures and eliminate problem of "budget freeriders". Earned income tax credit (EITC) in the USA has been analyzed regarding whether it is effective in targeting social and fiscal issues in this country. The study concluded that EITC assists a wide scope of low-income families with children and thus establishes high income tax progressivity in different brackets in the USA. The special attention was paid to the provisions of EITC and other in-work tax benefits under the system of married couple (joint) tax filing whose introduction is being currently debated in Ukraine with the aim to promote more socially-oriented tax system. The efficiency of tax benefits for families with children in Ukraine has been challenged within the analysis of legislative provisions of social tax allowance (STA) and estimation of STA influence on the welfare of low-income (poor) families with children. We have found evidence that STA in Ukraine is characterized with restrictions that make a large group of families with children ineligible and thus a conclusion was made that STA discriminates against those who are really in need. Furthermore, insufficient amount of deduction within STA seems inadequate in order to reduce poverty or increase income tax progressivity. Consequently, some recommendations in order to improve STA in Ukraine are suggested.


TAX BENEFITS TO FAMILIES WITH CHILDREN
The article deals with theoretical and empirical research of the influence of social tax benefits (allowances) on welfare of families with children in Ukraine and worldwide. International comparisons of basic features and requirements that serve to qualify recipients of the social tax allowance such as income threshold; family size and composition (including relationships, number and age of children); amount of tax deduction (social tax allowance); a tax wedge on labour; untaxed income are carried out. Basic advantages of tax benefits in comparison with direct state aid are generalized in terms of welfare improvement for families with children. Tax benefits are argued to work better as incentives for parents to increase their labour efforts. In addition, they also decrease pressure on working population, lower demand for government expenditures and eliminate problem of "budget freeriders". Earned income tax credit (EITC) in the USA has been analyzed regarding whether it is effective in targeting social and fiscal issues in this country. The study concluded that EITC assists a wide scope of low-income families with children and thus establishes high income tax progressivity in different brackets in the USA. The special attention was paid to the provisions of EITC and other in-work tax benefits under the system of married couple (joint) tax filing whose introduction is being currently debated in Ukraine with the aim to promote more socially-oriented tax system. The efficiency of tax benefits for families with children in Ukraine has been challenged within the analysis of legislative provisions of social tax allowance (STA) and estimation of STA influence on the welfare of low-income (poor) families with children. We have found evidence that STA in Ukraine is characterized with restrictions that make a large group of families with children ineligible and thus a conclusion was made that STA discriminates against those who are really in need. Furthermore, insufficient amount of deduction within STA seems inadequate in order to reduce poverty or increase income tax progressivity. Consequently, some recommendations in order to improve STA in Ukraine are suggested.
Key w o r d s : tax benefits, tax social allowance, tax credit, income tax JEL: H24, H29, H31 Improving the socio-economic status of the family and improving its welfare is inextricably linked to the reorientation of the domestic tax system to more socially oriented approaches to income taxation. Not only taxes but also tax benefits (allowances) on income should be taken into account, as they directly effect the fami-ISSN 2663-6557. Economy and Forecasting. 2019, 2 ly's financial status, as well as influence the adults' decisions regarding economic activity, in particular those on the choice between work and leisure.
Many publications by national researchers such as Y. Kyzyma, O. Kolomiiets, A. Krysovatyi, I. Lunina, I. Liutyi, I. Chekhovska, S. Yurii, etc. are devoted to the search of new and improvement of the existing approaches to taxation in order to promote the welfare of the most socially vulnerable population groups in Ukraine. The analysis of recent publications has shown that, among the priority guidelines for improving tax support for families and providing them with additional protection against discrimination in comparison with single citizens in the field of taxation, the introduction of family tax system, which is based on joint tax filing is actively discussed in Ukraine. As I. Chekhovska points out, this approach will allow to take into account the actual tax ability of the family and therefore improve the correspondence of its tax burden to the real financial status of the family [1, pp. 369-370].
Meanwhile, worldwide experience shows that one of the most pressing problems in our time is the problem of providing adequate level of welfare for singleparent families, consisting of a lonely mother (father) and a child (or several children). According to the Organization for Economic Co-operation and Development (OECD), the single-parent families are the most vulnerable in terms of poverty among all households with children [2].
According to Ukrainian experts I. Liutyi and V. Ivaniuk, overcoming poverty and narrowing the gap between wealthy and poor income brackets should be addressed first of all through the transition to the progressive tax system "as the basis for a fair distribution of fiscal burdens between rich and poor". An important role in restoring tax progressiveness in this context is played by the improvement of the system of tax benefits (individual and group) as a result of establishment of individual non-taxable minimum income at the economically justified level that corresponds to the minimum subsistence income [3].
However, our interest in tax preferences is largely driven not only by their ability to minimize the negative impact of excessive tax rates or to promote the vertical fairness of tax burden distribution between different income categories, but also by the ability of tax benefits (preferences) to encourage individuals to increase their labor efforts due to its stimulation function. According to the results of sociological research, one of the important reason of family poverty is the inability of parents to self-sufficiency, especially in single-parent families where a single breadwinner often has limited opportunities for self-development and professional growth and therefore gradually loses his or her competitiveness in the labor market [4].
The purpose of the article is to investigate the impact of tax benefits (preferences) on the welfare of families with children.
For the reasons mentioned above an urgent problem in the context of improving the welfare of families with children in Ukraine and around the world is improving tax incentives and encouraging parents to work by providing them with targeted tax benefits (preferences). It is about the tax benefits provided for each child in the form of tax credit or deduction from parents taxable income.
The important advantage of such tax benefits (preferences) over direct budget subsidies or child support payments is that tax preferences put significantly less pressure on fiscal expenditures. The socio-economic feasibility of introducing preferential taxation, according to the findings of a research conducted by A. Krysovatyi and G. Vasylevska, is determined by the lowest possible financial losses of the government as a result of its implementation [5, pp. 39-40]. On the other hand, it is also conditioned by the high importance of financial resources left in the pockets of economic agents to fulfill their family responsibilities.
Secondly, the replacement of direct budgetary assistance to low-income groups with targeted tax benefits, according to Ukrainian researchers S. Yurii and T. Kyzymy, can become an effective tool that will help to counterbalance the subjectivity in the allocation of budgetary resources as one of the causes of corruption [6].
It is also important to note that social tax benefits are not provided unconditionally, but only to most needy working employees, such as low-income families with minor children, single mothers (fathers), etc. This in turn will help to reduce the tax burden on working parents and at least partially contribute to solving the problem of budget "free riders" (individuals who use public benefits but do not pay taxes, and therefore do not participate in their financing). These "free riders" are a rather pressing problem in a number of economically developed European countries, especially the Scandinavian ones. The inflow of immigrants from other countries, including illegal ones, has increased significantly due to the high level of financing of the programs of social assistance for families and child protection at the expense of budget expenditures [7].

The international experience of application of tax preferences for families with children
The legislation in many developed economies provides for special tax benefits for taxpayers with children. For instance, the Earned Income Tax Credit is in the United States, the Working and Child Tax Credits is in the United Kingdom, the Family Tax Benefit is in Australia and the National Child Benefit and Working Income Tax Benefits is in Canada. Let's look into these benefits.
The Earned Income Tax Credit (hereinafter EITC) in the United States was introduced in 1975. EITC is the allowance that allows you to reduce the amount of personal income tax liabilities. Its size varies depending on the total income and family composition. Therefore, a prerequisite for obtaining EITC in the United States is to file a joint annual tax declaration for parents who are married. For example, a couple who have one minor can qualify for EITC if their entire annual income does not exceed 20,600 USD (as of 2017). For families with two minors this threshold is 50,597 USD, and three or more minors -53,930 USD (Table 1). At the same time, it should be noted that only one of the two parents can claim for EITCthe one whose income is higher.
The aggregate annual income (that is taken into account while determining the Earned Income Tax Credit) comprises taxable labor income (wages, bonuses, tips) ISSN 2663-6557. Economy and Forecasting. 2019, 2 for the year. It does not include non-working income such as interest on deposits, dividends, alimony, retirement benefits or unemployment benefits. It should be noted that the aggregate annual income that qualifies for EITC must be at least $ 1 USD. The individual who receives earning income and also investment income may qualify for EITC, but only on the condition that the total amount of his/her investment income in 2017 did not exceed 3450 USD.  According to our calculations, families whose aggregate annual income ranged from 1 USD to 14,000 USD received almost 40 cents compensation for each dollar they earned. So, if the aggregate annual income was 2,000, EITC was 810. And for the aggregate annual income 10,000, EITC was equal to 4010 USD.
Families with income between 14,000 USD and 20,000 USD were eligible for the maximum EITC (5,616 USD). For those families whose income exceeded this limit, EITC was significantly smaller. Thus, for families with an income of 35,000 USD, EITC was 3279 USD. For every dollar earned they only received just over 9 cents of compensation, which is almost 4 times less than that for the families with lower income. And for those individuals whose income was 45,000 USD, the size of EITC decreased to 331 USD, which is less than 3 cents per each dollar earned. It is obvious that this mechanism of giving tax preferences to low-and middle-income families contributes to a more efficient redistribution of income and enhances social justice.
Tax credits for families with children in the United Kingdom, Ireland and New Zealand are only for the working population. Thus, in the UK, only those who work at least 16 hours a week are eligible for the Working and Child Tax Credits, in Ireland -19 hours a week for the last three months and in New Zealand -20 hours a week (lonely mother or father) and 30 hours a week (two parents).
Today, the level of family tax benefits in OECD countries does not exceed 1% of GDP. Germany and the Czech Republic have the highest rate where it gradually increased to 0,9% of GDP in the last decade (Table 2).
In addition, according to the OECD, the tax wedge is defined as the ratio of the amount of taxes paid by an average single worker without children in the corresponding total labor costs of the employer (including individual income tax, unified social contribution, etc.). In 2017 tax wedge for the unmarried ind ividual without children was 35,9%, for a married individual with two children it was 26,1%, that is by almost 10 percentage points less. The largest gap is in Poland (25,6 percentage points), accounting for 35,6% of the tax wedge for an unmarried childless individual and only 10% of the tax wedge for a family with two children [10].

The analysis of individual tax benefits for families with children in Ukraine
Financial support to the most socially vulnerable sectors (families with children) is particularly urgent in times of economic instability in Ukraine. The rising unemployment, rising utility rates and rising inflation have had a particularly negative impact on the welfare of the population. According to the Ministry of Social Policy of Ukraine, in 2018 more than 270,000 families with children had the status of disadvantaged and received State social aid [11, p. 35]. According to the Article 2 of the Law of Ukraine "On State Aid to Families with Children" the disadvantaged families are those who have an average total monthly income below the subsistence income for the family. At present, the only form of tax support to economically disadvantaged families in Ukraine is the social tax allowance that is provided as a deduction from taxable income of taxpayers.
According to paragraph 169.4.1 of the Article 169 of the Tax Code of Ukraine "the social tax allowance is applied to the income accrued to a taxable person in the form of a salary (other payments, compensations and reimburs ements with the equivalent status according to the legislation) during the tax reporting month, if the amount of the taxable income does not exceed the amount of the monthly subsistence income of a working-age individual set as of 1 January of the tax reporting year multiplied by 1,4 and rounded to the nearest 10 UAH". In 2019, the maximum income to which social tax allowance can be applied is 2690 UAH (per child).
At the same time, only working taxpayers who have two or more children under the age of 18 are eligible to receive social tax allowance in our country. Such restrictions significantly narrow the range of families with children who can claim for this support in our country.
Thus, considering that in Ukraine only about 24% of households have two or more minors and less than 25% of employees (the data of State Statistics Service of Ukraine, March 2019) receive salaries below 5000 UAH, we estimate that only about 7% of employees receive social tax allowance. The actual number of families benefiting from this tax allowance may be even smaller, since only one of the two working parents is eligible for social tax allowance.
It is worth noting that in the past the social tax allowance system was more socially oriented. For example, in 2005 about 52,1% of employees in Ukraine, including 42,8% of industry workers, were entitled to use social tax allowance as determined by the size of their salary [12].
Therefore, such a low threshold that limits the entitlement to social tax allowance is ineffective in terms of achieving progressiveness in the income tax system. Therefore, it does not contribute to ensuring its fairness in the redistribution of income between poor and wealthy households. International comparisons indicate that this threshold is quite high in almost all OECD countries. There, families with two or more children are eligible for social tax allowance, even if one of the working parents earns an average salary. For example, in the United Kingdom this threshold was 10600 EUR in 2015, in Finland -16500 EUR, in Cyprus -£ 19500 EUR [13]. The only exceptions are Australia, Iceland and Mexico (Table 3).
According to the State Statistics Service of Ukraine, the average nominal salary of a full-time employee in Ukraine in May 2019 amounted to 8957 UAH, which is 3,3 times higher than the threshold for obtaining social tax allowance. According to our calculations, if we give entitlement to social tax allowance to workers who receive at least average salaries (this is approximately 48% of all full-time employees), we should set a threshold that is equal to the actual subsistence income for the working-age persons (according to the estimation of the Ministry of Social Policy of Ukraine in May 2019 it amounted to 4745 UAH, including all compulsory payments) that would increase the number of households using this tax allowance to 11,5%. Source: prepared by the author on the basis of the OECD Statistics [9].
In addition, number and age of children, in our view, are the discriminatory restrictions. Today, an individual who has one child, even if he/she receives a minimum salary (4173 USD per month in 2019) is not eligible for social tax allowance. At the same time, in some countries such restrictions are absent (Fig. 2) and deductions from the taxable income of parents are made even if children are in the age of thirty on the condition that they are currently studying and do not have their own income yet (Spain) [14]. As we can see from Fig. 2, the amount of tax benefits in the former socialist countries (Estonia, Latvia, Lithuania and Hungary) in monetary terms is inferior to more economically developed EU member states (Germany, Belgium). For example, in Germany the amount of deductions from taxable annual income per child is 7008 EUR per year that is more than 10 times higher than the 680 EUR in Hungary. This situation is due to a significant gap between salaries in these countries (Table 4).
In Belgium, Slovenia, Spain and Croatia the size of the deduction depends on the number of children. A larger deduction is provided for the second and third child than for the first one. In Belgium, for example, the deduction for the third child is 4820 EUR per year, in Spain and Croatia about 4000 EUR per year. At the same time, in Hungary tax deductions for families with one or two children are allowed at 205 EUR per year, but if there are three or more children, the deduction increases to 680 EUR per child. Accordingly, in 2015 the taxable income of a family with three children is reduced by 2040 EUR per year (680*3) and for a family with two children -reduced by only 410 EUR (205*2). ISSN 2663-6557. Economy and Forecasting. 2019, 2 It is also worth noting that families with children under three can claim for higher tax deductions in such countries, as Italy, Spain, Latvia and Portugal. Particularly, in Latvia an additional 560 EUR is deducted for every child. As a result, the amount of deductions for each child up to three years old in 2015 reached 2540 EUR (1980 + 560 EUR) per year. A similar situation is also observed in Spain: in 2015 the amount of deductions for each child under the age of three is increased by an additional 2800 EUR and amounted to 5200 EUR (2400 + 2800 EUR) per year.
Unfortunately, in Ukraine more than 43% of households living below the poverty line in 2018 had children under the age of three. The average per capita income in such families was less than 75% of the subsistence income. However, according to the Ministry of Social Policy, the highest poverty rate (over 55%) was observed in families with multiple children [11, p. 14]. However, there are no special conditions for granting social tax benefits for these categories of taxpayers in the national legislation.
According to the paragraph 169.1 of the Article 169 of the Tax Code of Ukraine, the amount of social tax allowance in Ukraine in 2019 is 960,50 UAH (50% of the subsistence income of working-age citizens). A lonely mother (father), a widow (widower) and taxpayers who support a disabled child are eligible for 150 per cent of the allowance in the amount of 1440,75 UAH per child. For example, an employee who is the father of two minors (one of them is a disabled person) can expect a social tax allowance of 2401,25 UAH (960,50 + 1440,75 UAH). Thus, if the monthly taxable income of such an employee does not exceed 5380 UAH (2690*2), the real rate of his/her income tax, according to our calculations, is 13,7%, compared with 19,5% (statutory tax rate for income and war tax) paid by an individual without children. In France, for example, a family with two children pays five times less income tax than an individual without children who receives the same income [16].
It is also worth drawing attention to the fact that Ukraine does not provide any deductions from taxable income when military levy is withheld. Although the rate of this levy is negligible (1,5%), it negates the impact of social tax allowance on the poor. For example, a lonely mother with two children, working part-time and receiving, for example, 50% of the minimum salary, is exempted from paying personal income tax, since the amount of social tax allowance (2881,50 UAH) exceeds her taxable income, but at the same time pays military levy in full.
So, as our analysis has shown, socially effective and tangible tax benefits for families with children in Ukraine are virtually absent. They only apply to working parents who receive salaries and are only applicable to the personal income tax.
The bulk of benefits from the social tax allowance only goes to a small proportion of very low income families with children. This fact indicates the regressivenes of the existing benefit system and the very small social effect that should be given to increasing the level of social support and welfare of such families.

Conclusions and recommendations
The identified weaknesses in the system of tax social allowance for families with children in Ukraine prove that the current mechanism is not effective enough to overcome poverty and increase incentives to work.
In order to improve national fiscal and social policies, as well as employment policies, we suggest the following proposals: Firstly, there is a need to raise the threshold for entitlement to social tax allowance. This would also help to unshadow earned income because employees would not have to understate their real salaries in order to get social tax allowance.
Secondly, regarding the fact that only one parent is able to claim for social tax allowance, it does not encourage the other parent to increase his/her work efforts and make a profit from work. We suggest giving the right to deduct social tax allowance from the taxable income of each working parent.
Thirdly, it is necessary to extend the types of benefits for families with children, for example by introducing a non-taxable minimum for military levy.
Fourthly, it is advisable to abolish the restrictions on the number of children in the family who qualify for social tax allowance by providing such a right to all employees with children without exception.
The implementation of the above mentioned proposals would require corresponding amendments to the Tax Code of Ukraine, as well as other laws. It would ultimately help to strengthen social protection and increase the welfare of families with children, reduce poverty in Ukraine and gradually bring it closer to the tax and social standards of the developed countries.