The buffering effect of the Austrian tax-benefit system on child poverty during the COVID-19 pandemic

This paper analyses the effect of the COVID-19-induced labour market shock on household income, the at-risk-of-poverty (AROP) rate for children in Austria, and the buffering effect of the Austrian tax-benefit system. We apply Paulus & Tasseva's (2020) decomposition analysis based on EUROMOD simulations and propose a new approach to adjust Austrian EU-SILC data to control for benefit payments included in income variables. Our results indicate that automatic stabilisers and discretionary policy measures protected households with children from significant market income shocks, preventing an increase in child poverty between 2019 and 2020. However, comparing 2019 and 2021, the tax-benefit system was less successful in protecting lower-income families, resulting in an increase in the child AROP rate. Furthermore, we show that not adjusting input data would overestimate disposable income increases and distort the effects of discretionary policies and automatic stabilisers.