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Labeling Effects of Child Benefits on Family Savings

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  • Timo Hener

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Abstract

Contrary to standard microeconomic principles, it is by now well understood that income is not fungible. For example, the label of a government transfer can induce individuals to make expenditure decisions that are skewed towards the label. In this paper, we show that child benefits are disproportionately used for savings assignable to children. We exploit a policy reform in a difference-in-differences approach to estimatethe effect of child benefits on savings while holding total household income constant.Our results suggest a significant positive labeling effect on long-term savings, but noeffect on assignable consumption. We conclude that labeling effects should be consideredcarefully by policy makers, if not for nudging individuals, then to avoidaffecting decisions unintentionally.

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Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Paper No. 163.

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Date of creation: 2013
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Handle: RePEc:ces:ifowps:_163

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Keywords: Fungibility; labeling effects; child benefits; savings;

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  1. Abeler, Johannes & Marklein, Felix, 2008. "Fungibility, Labels, and Consumption," IZA Discussion Papers 3500, Institute for the Study of Labor (IZA).
  2. Scholten, Ulrich, 2000. "Rotating Savings and Credit Associations in Developed Countries: The German-Austrian Bausparkassen," Journal of Comparative Economics, Elsevier, vol. 28(2), pages 340-363, June.
  3. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
  4. Paul Gregg & Susan Harkness & Sarah Smith, 2007. "Welfare Reform and Lone Parents in the UK," The Centre for Market and Public Organisation 07/182, Department of Economics, University of Bristol, UK.
  5. Thomas, D., 1995. "Like Father, Like Son, Like Mother, Like Daughter, Parental Resources and Child Height," Papers 95-01, RAND - Reprint Series.
  6. Schady, Norbert & Rosero, José, 2008. "Are cash transfers made to women spent like other sources of income?," Economics Letters, Elsevier, vol. 101(3), pages 246-248, December.
  7. Esther Duflo, 2003. "Grandmothers and Granddaughters: Old-Age Pensions and Intrahousehold Allocation in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 1-25, June.
  8. Borsch-Supan, Axel & Stahl, Konrad, 1991. "Do savings programs dedicated to home-ownership increase personal savings? : An analysis of the West German Bausparkassen system," Journal of Public Economics, Elsevier, vol. 44(3), pages 265-297, April.
  9. Fack, Gabrielle, 2006. "Are housing benefit an effective way to redistribute income? Evidence from a natural experiment in France," Labour Economics, Elsevier, vol. 13(6), pages 747-771, December.
  10. Edwin Deutsch & Horst Tomann, 1995. "Home Ownership Finance in Austria and Germany," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(4), pages 441-474.
  11. Pnina O. Plaut & Steven E. Plaut, 2004. "The Economics of Housing Savings Plans," The Journal of Real Estate Finance and Economics, Springer, vol. 28(4), pages 319-337, 05.
  12. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-43, September.
  13. Nicholas Barberis & Ming Huang & Richard H. Thaler, 2006. "Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing," American Economic Review, American Economic Association, vol. 96(4), pages 1069-1090, September.
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