Child Support Enforcement and Children's Consumption
This paper examines the consequences of child support enforcement on custodial mothers' consumption decisions. We model the interaction in separated couples as a repeated game between the noncustodial father and the custodial mother who share a common good: the child. The mother exclusively controls the child's consumption, whereas the father can only influence the child's consumption indirectly through transfers to the mother. Initially, it is a double sided lack of commitment problem, where parents voluntarily agree on transfer payments and child expenditure, but can renege on their part of the contract at any time. Using the non-cooperative Nash-Stackelberg equilibrium as a threat point, we look for the Pareto frontier of Subgame Perfect Equilibrium payoffs and characterize the equilibrium of the model. We then incorporate the legal background by allowing for strict child support enforcement. The enforcement equilibrium serves as the new threat point which supports the new Pareto frontier of payoffs. Relative to the old, no-enforcement threat point, enforcement delivers a higher utility to the mother, making it harder to satisfy her incentive for spending large amounts on the child. As a result, mothers will spend a larger fraction of their income on themselves and a lower fraction on the child. We test that hypothesis using CEX data from years before and after the enforcement policies were implemented. The results indicate a significant increase in this ratio for mothers receiving child support, supporting the model prediction. On the other hand, there is no observable change in that ratio for mothers not receiving child support suggesting that their behavior was, as expected, unaffected by the new laws.
|Date of creation:||2008|
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