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Who Benefits From Child Benefit?

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  • LAURA BLOW
  • IAN WALKER
  • YU ZHU

Abstract

Over much of the developed world governments 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 on household spending patterns. The UK is an excellent laboratory to address this issue because such transfers, known as Child Benefit (CB), were simple lump sum universal payments for a 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 more than half of a marginal pound of CB is spent on alcohol. We resolve the 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
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Laura Blow & Ian Walker & Yu Zhu, 2012. "Who Benefits From Child Benefit?," Economic Inquiry, Western Economic Association International, vol. 50(1), pages 153-170, January.
  • Handle: RePEc:bla:ecinqu:v:50:y:2012:i:1:p:153-170
    DOI: j.1465-7295.2010.00348.x
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    References listed on IDEAS

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    1. John Micklewright, 2003. "Child Poverty in English-Speaking Countries," Papers inwopa03/25, Innocenti Working Papers, revised 2003.
    2. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August.
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    7. Keen, Michael, 1986. "Zero Expenditures and the Estimation of Engel Curves," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 277-286, July.
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    Citations

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    Cited by:

    1. Angus Holford, 2015. "The labour supply effect of Education Maintenance Allowance and its implications for parental altruism," Review of Economics of the Household, Springer, vol. 13(3), pages 531-568, September.
    2. Christian Raschke, 2016. "The Impact of the German Child Benefit on Household Expenditures and Consumption," German Economic Review, Verein für Socialpolitik, vol. 17(4), pages 438-477, November.
    3. Beatty, Timothy K.M. & Blow, Laura & Crossley, Thomas F. & O'Dea, Cormac, 2014. "Cash by any other name? Evidence on labeling from the UK Winter Fuel Payment," Journal of Public Economics, Elsevier, vol. 118(C), pages 86-96.
    4. Gregg, Paul & Waldfogel, Jane & Washbrook, Elizabeth, 2005. "Expenditure patterns post-welfare reform in the UK: are low-income families starting to catch up?," LSE Research Online Documents on Economics 6259, London School of Economics and Political Science, LSE Library.
    5. Lange, Ian & Moro, Mirko & Rahman, Mohammad Mahbubur, 2014. "Policy Labels and Investment Decision-making," SIRE Discussion Papers 2014-005, Scottish Institute for Research in Economics (SIRE).
    6. Olivier Bargain & Olivier Donni, 2007. "A Theory of Child Targeting," Working Papers 200710, Geary Institute, University College Dublin.
    7. Johannes Abeler & Felix Marklein, 2017. "Fungibility, Labels, and Consumption," Journal of the European Economic Association, European Economic Association, vol. 15(1), pages 99-127.
    8. Simpson, Nicole B., 2013. "Families, Taxes and the Welfare System," IZA Discussion Papers 7369, Institute for the Study of Labor (IZA).
    9. Michael Malcolm, 2013. "Preferences and Policies: An Intra-Household Demand System," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 67-80, March.
    10. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1134-0 is not listed on IDEAS
    11. Kim, S, 1977. "Instability Of Primary Exports, Income Stabilisation Policies And Welf Are," Working Papers 11, University of Sydney, School of Economics.
    12. repec:kap:reveho:v:15:y:2017:i:3:d:10.1007_s11150-015-9291-z is not listed on IDEAS
    13. 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.
    14. Kerris Cooper & Kitty Stewart, 2017. "Does Money Affect Children’s Outcomes? An update," CASE Papers /203, Centre for Analysis of Social Exclusion, LSE.
    15. Sonia Bhalotra, 2004. "Parent Altruism, Cash Transfers and Child Poverty," Bristol Economics Discussion Papers 04/561, Department of Economics, University of Bristol, UK.
    16. Anna Baranowska-Rataj & Xavier de Luna & Anneli Ivarsson, 2016. "Does the number of siblings affect health in midlife? Evidence from the Swedish Prescribed Drug Register," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 35(43), pages 1259-1302, November.

    More about this item

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D79 - Microeconomics - - Analysis of Collective Decision-Making - - - Other
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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