Greece supports families with children through a means-tested child benefit and a child-related component of the Employment, Pensions and Farming (EPF) income tax credit. This note compares two alternative reforms that each increase family support spending by EUR 200 million: raising the child benefit by 30%, or increasing the child component of the EPF tax credit by 76%. The note also examines a third scenario that changes the equivalence scale used to determine child benefit eligibility.
Strengthening family benefits in Greece
Abstract
Same cost, different reach. Both reforms cost around EUR 200 million. The child benefit reform raises child benefit spending by 30%; the child-related component of the EPF tax credit reform reduces PIT revenues by about 2%.
Child benefit reform is more progressive. It concentrates gains in the bottom of the distribution. Disposable income rises by 1.4% in the first decile and phases out above the fifth. The tax credit reform benefits mainly middle‑income taxpayers.
Child benefit reform reduces poverty and inequality more. It cuts the overall poverty rate by 0.45 percentage points (p.p.) and the child poverty rate by 1.42 points. The tax credit reform achieves smaller reductions: 0.15 and 0.34 p.p. respectively.
Policy choice depends on objectives. If the goal is to reduce child poverty, the child benefit reform is more effective. If the goal is to provide relief for middle‑income families or reduce the tax wedge on labour, the tax credit reform is more appropriate.
Changing the equivalence scale broadens coverage but reduces targeting. Replacing the current equivalence scale with a per-capita scale raises the fiscal cost by 65% and shifts support away from the poorest households.
Greece channels family support to households with children through two main instruments: a means-tested child benefit and a child-related component of the Employment, Pensions and Farming (EPF) income tax credit. In 2024, Greece allocated about EUR 700 million to the child benefit and approximately EUR 400 million to the child-related component of the EPF tax credit, together representing around 2% of GDP. While both measures aim to support families with children, they target different groups.
This note compares the distributional, poverty, and inequality impacts of two hypothetical reforms that each increase spending on family support by EUR 200 million: one raises the child benefit amount by 30%, the other increases the child component of the EPF tax credit by 76%. The note also examines a third scenario: replacing the equivalence scale used to determine child benefit eligibility.
The child benefit is a non-taxable, means-tested benefit. Amounts depend on family income and the number of children (Table 1 – Baseline). The family assessed income is adjusted using an equivalence scale. The reform consists of increasing all baseline amounts by 30% (Table 1 – Reform scenario).
Child benefit income brackets and amounts, 2025 baseline and reform scenario
Note: Greek child benefit rules and EUROMOD country report for the baseline scenario. Reform scenario designed jointly by the OECD and the Unit of Experts in Employment, Social Insurance, Welfare and Social Affairs – M.E.K.Y. (Greek Ministry of Social Cohesion and Family and Greek Ministry of Labour and Social Insurance).
The EPF tax credit is part of the income tax system. It is designed to reduce taxpayers’ PIT liability and is capped at the tax due on EPF income. It phases out gradually by EUR 20 for each EUR 1 000 of EFP income above EUR 12 000. The credit increases with the number of children (Table 2 – forth column). The reform under analysis consists of increasing the child component of the EPF tax credit by 76% (Table 1 – seventh column).
EPF income tax credit, individual and child amounts, 2025 baseline and reform scenario
The two reforms would absorb almost the full fiscal envelope of EUR 200 million. The child benefit reform would increase the budgetary cost of the programme by around 30%, while the 76% increase in the EPF tax credit would reduce PIT revenues by just over 2% (Table 3 – second and forth columns). The child benefit reform would have an indirect effect on the cost of the Guaranteed Minimum Income (GMI) benefit: a higher child benefit amount would raise the assessed means-tested income of some families, reducing or ending their entitlement to the GMI. This interaction would lower the gross cost of the child benefit reforms by about 5%. The EPF tax credit reform would not have detectable interactions with other policies – it would simply reduce tax liability, thus its gross and net budgetary cost would be the same.
Gross and net budgetary impacts of the child benefit and child component of the EPF tax credit reforms
Although both instruments target families with children, they reach different parts of the income distribution. The child benefit directs 42% of its budget to the poorest 20% of households (Figure 2 – light orange circle). By contrast, the child related component of the EPF tax credit spreads more evenly: only 7% goes to the poorest 20%, while 20% reaches the richer 20% (Figure 2 – light green circle).
The two reforms would amplify these patterns. The child benefit reform would keep its focus on low-income families, while the EPF tax credit reform would shift even more support towards higher income taxpayers (Figure 1 – dark orange and dark green circles). This is because the PIT in Greece is not refundable, so low-income individuals do not fully benefit from increased tax credits due to limited tax liability.
Distribution of the child benefit and child component of the EPF tax credit budgetary cost in the 1st and 5th quintiles of equivalised household disposable income, before and after the reforms
Note: Quintiles are defined according to the equivalised disposable household income in the 2025 baseline, using the OECD modified scale.
Source: OECD calculations using the EUROMOD J1.0+ model and EU-SILC 2022 data.
Both reforms would raise disposable income by about 0.3% on average (Figure 2). However, and in line with Figure 1, the distributional impacts would differ. The child benefit reform would have a clear progressive pattern. It would raise incomes by 1.4% in the first decile and gradually phase out across the distribution. Above the 5th decile, the average gain would fall below 0.3%. In the top decile, the effect would be negligible (Figure 2 – orange bars).
The EPF income tax credit reform would particularly benefit those in the middle of the income distribution. The third, fourth, seventh and eight deciles would gain the most – around 0.4% (Figure 2 – green bars). The poorest and the richest deciles would see minimal change, below 0.2%, reflecting limited tax liability at the bottom and diminishing gains in percentual terms at the top.
Both reforms would lower inequality and poverty, but to different degrees (Table 4). The child benefit reform would achieve larger reductions (Table 4 – second column). It would lower the overall poverty rate from 16.9% to 16.4%, and the child poverty rate from 19% to 17.6%. Due to the increased support towards the lower part of the income distribution, the reforms would also reduce inequality as measured by the Gini index by 0.19 p.p.
In comparison, the EPF tax credit reform would have more modest effects (Table 4 – third column). It would reduce the overall poverty rate from 16.9% to 16.7%, and the child poverty rate to 18.7%. Its flatter distributional profile explains the smaller reduction in inequality: the Gini coefficient would drop by just 0.02 p.p.
Note: Poverty line set at 60% of the median equivalised household disposable income, anchored to the 2025 baseline.
Source: OECD calculations using the EUROMOD J1.0+ model and EU-SILC 2022 data.
Overall, the choice between the two reforms ultimately depends on the policy priorities set. If the main objective is to achieve a stronger reduction in child poverty, then targeted measures such as the reform of the child benefit appear more effective. Conversely, if the priority is to provide relief to middle‑income families or to reduce the tax wedge on labour, then a reform of the tax system, again in a targeted manner, would be the more appropriate path.
Eligibility for the child benefit depends on equivalised family income. The current equivalence scale assigns a value of 1 to the family head, 0.5 to the spouse, and 0.25 to each dependent child, reflecting economies of scale in household spending. This section examines what happens if that assumption is removed, replacing the existing scale with a per-capita scale that assigns a value of 1 to each family member. For larger households, a per-capita scale produces lower equivalised income, which would bring more families within the eligibility threshold and raise benefit amounts for existing recipients.
This reform would raise the fiscal cost of the child benefit by 65%, to EUR 1 135 million. Because the same equivalence scale determines eligibility for the birth grant benefit, the total cost of the reform would reach EUR 450 million.
On average, equivalised disposable income would increase by less than 1% (Figure 3). Gains concentrate between the second and sixth decile. The first decile sees almost no change: most of the poorest families already receive the maximum benefit and do not gain from broader eligibility. The reform therefore shifts benefits away from the poorest. The share of child benefit spending going to the bottom quintile would fall from 42% to 29%, while 6% would flow to the top quintile, as more higher-income families become eligible.
The reform would still reduce poverty and inequality. The overall poverty rate would fall by a similar amount to the 30% child benefit increase (Reform 1). However, the impact on child poverty would be less than half that of Reform 1. The Gini coefficient would fall by 0.15 points, slightly less than Reform 1. These results show that broader coverage, without reinforced eligibility rules, reduces the redistributive efficiency of the instrument: spending more achieves less. Any move to a per-capita scale would therefore benefit from additional design features to preserve targeting.
The reforms described in this note were carried out as part of the 2025 Technical Support Instrument (TSI) project “Boosting the Usage of Distributional Impact Assessments through Microsimulation”, funded by the European Commission. The beneficiary authority in Greece was the Unit of Experts in Employment, Social Insurance, Welfare and Social Affairs – M.E.K.Y. The reforms designed and assessed during the project implementation, including those described in this note, were for capacity building purposes only and do not necessarily reflect the official views of the beneficiary authority.
More information on Greece’s tax and benefit system is available in the OECD Descriptions of Tax and Benefit systems.
How do taxes and benefits affect disposable household income, benefit replacement rates, benefit adequacy, and financial work incentives? Find it out using the OECD tax-benefit web calculator.
More information on the EUROMOD microsimulation model: here.
Contact: Sara Riscado (Sara.Riscado@oecd.org), Daniele Pacifico (Daniele.Pacifico@oecd.org) and Ella-Marie Assal (Ella-Marie.Assal@oecd.org).
This work is issued under the responsibility of the Secretary-General of the OECD, and does not necessarily reflect the official views of OECD Member countries.
This document was produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.
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