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Who Benefits from Child Benefit?

  • 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)

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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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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  1. 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.
  2. Gary S. Becker & Nigel Tomes, . "Human Capital and the Rise and Fall of Families," University of Chicago - Population Research Center 84-10, Chicago - Population Research Center.
  3. Janet Currie, 1994. "Welfare and the Well-Being of Children: The Relative Effectiveness of Cash and In-Kind Transfers," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 1-44 National Bureau of Economic Research, Inc.
  4. John Shea, 1997. "Does Parents' Money Matter?," NBER Working Papers 6026, National Bureau of Economic Research, Inc.
  5. Phipps, S.A. & Burton, P.S., 1992. "What's Mine is Yours?: The Influence of Male and Female Incomes on Patterns of Household Expenditure," Department of Economics at Dalhousie University working papers archive 92-12, Dalhousie, Department of Economics.
  6. John Micklewright, 2003. "Child Poverty in English-Speaking Countries," Papers inwopa03/25, Innocenti Working Papers, revised 2003.
  7. Jacoby, Hanan, 1997. "Is there an intrahousehold 'flypaper effect'?," FCND discussion papers 31, International Food Policy Research Institute (IFPRI).
  8. 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.
  9. 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.
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