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Who Benefits From Child Benefit?

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Author Info

  • LAURA BLOW
  • IAN WALKER
  • YU ZHU

Abstract

Governments, over much of the developed world, make significant financial transfers to parents with dependent children. For example, in the US the recently introduced Child Tax Credit (CTC), which goes to almost all children, costs almost $1billion each week, or about 0.4% of GNP. The UK has even more generous transfers and spends about $25 a week on each of about 8 million children – about 1% of GNP. The typical rationale given for these transfers is that they are good for our children and here we investigate the effect of such transfers on household spending patterns. The UK is an excellent laboratory to address this issue because such transfers, known as Child Benefit (CB) have been simple lump sum universal payments for a continuous period of more than 20 years. We do indeed find that CB is spent differently from other income – paradoxically, it appears to be spent disproportionately on adult-assignable goods. In fact we estimate that as much as half of a marginal pound of CB is spent on alcohol. We resolve this puzzle by showing that the effect is confined to unanticipated variation in CB so we infer that parents are sufficiently altruistic towards their children that they completely insure them against shocks.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 50 (2012)
Issue (Month): 1 (01)
Pages: 153-170

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Handle: RePEc:bla:ecinqu:v:50:y:2012:i:1:p:153-170

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References

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  1. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(3), pages S1-39, July.
  2. Janet Currie, 1993. "Welfare and the Well-Being of Children: The Relative Effectiveness of Cash and In-Kind Transfers," NBER Working Papers 4539, National Bureau of Economic Research, Inc.
  3. Micklewright, John, 2004. "Child Poverty in English-Speaking Countries," IZA Discussion Papers 1113, Institute for the Study of Labor (IZA).
  4. Richard Dickens & David T Ellwood, 2003. "Child Poverty in Britain and the United States," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(488), pages F219-F239, 06.
  5. Jacoby, Hanan, 1997. "Is there an intrahousehold 'flypaper effect'?," FCND discussion papers, International Food Policy Research Institute (IFPRI) 31, International Food Policy Research Institute (IFPRI).
  6. Bergstrom, Theodore C, 1989. "A Fresh Look at the Rotten Kid Theorem--and Other Household Mysteries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1138-59, October.
  7. Phipps, Shelley A & Burton, Peter S, 1998. "What's Mine Is Yours? The Influence of Male and Female Incomes on Patterns of Household Expenditure," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 65(260), pages 599-613, November.
  8. Keen, Michael, 1986. "Zero Expenditures and the Estimation of Engel Curves," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(3), pages 277-86, July.
  9. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, Elsevier, vol. 77(2), pages 155-184, August.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Pregnancy pay-out nonsense
    by chris dillow in Stumbling and Mumbling on 2007-09-10 09:43:53
  2. Who really gets child benefit?
    by chris dillow in Stumbling and Mumbling on 2010-10-05 12:24:34
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Cited by:
  1. Paul Gregg & Jane Waldfogel & Elizabeth Washbrook, 2005. "Expenditure patterns post-welfare reform in the UK: are low-income families starting to catch up?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 6259, London School of Economics and Political Science, LSE Library.
  2. Sonia Bhalotra, 2004. "Parent Altruism, Cash Transfers and Child Poverty," Bristol Economics Discussion Papers 04/561, Department of Economics, University of Bristol, UK.
  3. Johannes Abeler & Felix Marklein, 2010. "Fungibility, Labels and Consumption," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2010-13, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  4. Ian Lange & Mirko Moro & Mohammad Mahbubur Rahman, 2014. "Policy Labels and Investment Decision-making," Working Papers, Colorado School of Mines, Division of Economics and Business 2014-02, Colorado School of Mines, Division of Economics and Business.
  5. Olivier Bargain & Olivier Donni, 2007. "A Theory of Child Targeting," Working Papers, School Of Economics, University College Dublin 200703, School Of Economics, University College Dublin.
  6. Sonia Bhalotra, 2004. "Early Childhood Investments in Human Capital: Parental Resources and Preferences," Bristol Economics Discussion Papers 04/562, Department of Economics, University of Bristol, UK.
  7. Simpson, Nicole B., 2013. "Families, Taxes and the Welfare System," IZA Discussion Papers 7369, Institute for the Study of Labor (IZA).
  8. Kim, S, 1977. "Instability Of Primary Exports, Income Stabilisation Policies And Welf Are," Working Papers, University of Sydney, School of Economics 11, University of Sydney, School of Economics.

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