Abstract
Cliff effects in tax and benefit systems have been the subject of growing scholarly attention for more than three decades. Despite this sustained interest, they continue to persist in the design of many national systems. Empirical studies consistently demonstrate that the presence of cliff effects undermines the economic incentives of individuals and households, especially in relation to the concepts of the “unemployment trap” and “poverty trap”. This article focuses on the analysis of a cliff effect associated with child allowance within the system of state social support. The assessment of the potential impact of removing this cliff effect is based on empirical data from November 2022 and 2023, using simulation and microsimulation methods. The results suggest that the elimination of the cliff effect could significantly enhance work incentives for individuals and households near the eligibility threshold. Moreover, the fiscal impact of such a measure appears to be budget-neutral.