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Who Benefits from Child Benefit?

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Author Info

  • Laura Blow

    (Institute for Fiscal Studies, 7 Ridgemount Street, London, WC1E 7AE, Uk)

  • Ian Walker

    (Department of Economics, University of Warwick, Coventry, CV4 7AL, UK)

  • Yu Zhu

    (Department of Economics, University of Kent, Canterbury, CT2 7NP, UK)

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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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/GearyWp200716.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200716.

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Length: 31 pages
Date of creation: 08 Jun 2007
Date of revision:
Handle: RePEc:ucd:wpaper:200716

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Keywords: altruism; child poverty; intra-household transfers;

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References

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  1. Keen, Michael, 1986. "Zero Expenditures and the Estimation of Engel Curves," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 277-86, 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. Richard Dickens & David T Ellwood, 2003. "Child Poverty in Britain and the United States," Economic Journal, Royal Economic Society, vol. 113(488), pages F219-F239, 06.
  4. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
  5. Jacoby, Hanan, 1997. "Is there an intrahousehold 'flypaper effect'?," FCND discussion papers 31, International Food Policy Research Institute (IFPRI).
  6. 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, vol. 65(260), pages 599-613, November.
  7. John Micklewright, 2003. "Child Poverty in English-Speaking Countries," Innocenti Working Papers inwopa03/25, UNICEF Innocenti Research Centre, revised 2003.
  8. Bergstrom, Theodore C, 1989. "A Fresh Look at the Rotten Kid Theorem--and Other Household Mysteries," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1138-59, October.
  9. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, 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. Who really gets child benefit?
    by chris dillow in Stumbling and Mumbling on 2010-10-05 12:24:34
  2. Pregnancy pay-out nonsense
    by chris dillow in Stumbling and Mumbling on 2007-09-10 09:43:53
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Cited by:
  1. Abeler, Johannes & Marklein, Felix, 2008. "Fungibility, Labels, and Consumption," IZA Discussion Papers 3500, Institute for the Study of Labor (IZA).
  2. Paul Gregg & Jane Waldfogel & Elizabeth Washbrook, 2005. "Expenditure Patterns Post-Welfare Reform in the UK: Are low-income families starting to catch up?," CASE Papers 099, Centre for Analysis of Social Exclusion, LSE.
  3. Lange, Ian & Moro, Mirko & Rahman, Mohammad, 2014. "Policy Labels and Investment Decision-making," Stirling Economics Discussion Papers 2014-01, University of Stirling, Division of Economics.
  4. 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.
  5. Kim, S, 1977. "Instability Of Primary Exports, Income Stabilisation Policies And Welf Are," Working Papers 11, University of Sydney, School of Economics.
  6. Olivier Bargain & Olivier Donni, 2007. "A Theory of Child Targeting," Working Papers 200703, School Of Economics, University College Dublin.
  7. Simpson, Nicole B., 2013. "Families, Taxes and the Welfare System," IZA Discussion Papers 7369, Institute for the Study of Labor (IZA).
  8. Sonia Bhalotra, 2004. "Parent Altruism, Cash Transfers and Child Poverty," Bristol Economics Discussion Papers 04/561, Department of Economics, University of Bristol, UK.

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