The Economic Motives for Child Allowances: Altruism, Exchange or Value of Independence?
AbstractThis paper looks inside the â€œblack boxâ€ of the family and examines the determinants of inter vivos transfers in the form of allowances given to children. We consider in a simple model two main competing explanations for the transfer of money from parents to children in the form of regular allowances, namely altruism and exchange. We also extend the altruism framework to include unobserved child heterogeneity in monetary autonomy or the 'value of independence'. We use a unique dataset drawn from the British Family Expenditure Survey, which enables us to explicitly test both the inter-generational predictions of the various models, and through a study of siblings, we are also able to consider the intra-household aspects of such payments. Using both random (inter-household) and fixed-effect (intra-household) estimators, we find robust evidence of an n- shape relationship between a child's external income and the receipt of allowances from parents. Importantly, this estimated profile does not fit the predications of simple models of altruism or exchange, but does fit an altruism model with unobserved heterogeneity. Further support for the importance of the value of independence is that girls and those with higher birth orders obtain much higher allowances, whereby we argue both girls and those born later mature earlier and are therefore likely to be causally related to a high value of independence. We believe that further investigation of the motives underlying intra-household transfers is important for the design of policies aimed at redistributing income, such as child welfare payments.
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Bibliographic InfoPaper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 446.
Date of creation: 2002
Date of revision:
Other versions of this item:
- Paul Frijters & Lisa Farrell & Michael A. Shields, 2002. "The Economic Motives For Child Allowances:Altruism, Exchange Or Value Of Independence?," Paul Frijters Discussion Papers 2002-3, School of Economics and Finance, Queensland University of Technology.
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