Less for more? Cuts to child benefits, family adjustments, and long-run child outcomes in larger families

Families with two or more children often receive extra income support from the tax-benefit system to contrast poverty risks and help with the costs of raising children. Starting in the 1990s, however, cutbacks have been implemented across European countries. The long-run consequences for children’s human capital might have been substantial, unequal across households, and depended on how families adjusted to less generous support. I examine a Dutch reform that curtailed child-benefit payments for families with second or higher-order children born from 1 January 1995 onwards. The reform imparted a small yearly cutback, but large benefit income losses accumulated until children reached age 18. Based on high-quality administrative data and a regression discontinuity design, I find little evidence of average reform effects on children’s long-run educational and health outcomes. However, children in less well-off households appear less likely to enrol in the academic track of secondary school and more likely to graduate from college as opposed to university. Rather than compensatory labour supply responses or a decrease in total fertility, I find larger earnings losses for mothers affected by the reform and no evidence of changes in the number of children. Survey evidence suggests that cohorts exposed to the reform were more likely to experience income poverty and invested less in child-related goods, including daycare, both in absolute terms and using money from child benefits.