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Who benefits from Child Benefit?

  • Blow, Laura

    (Institute for Fiscal Studies)

  • Walker, Ian

    (Department of Economics, University of Warwick)

  • Zhu, Yu

    (Department of Economics, University of Kent,)

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

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_749.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 749.

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Length: 32 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:wrk:warwec:749
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Micklewright, John, 2004. "Child Poverty in English-Speaking Countries," IZA Discussion Papers 1113, Institute for the Study of Labor (IZA).
  2. 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.
  3. 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.
  4. John Shea, 1997. "Does Parents' Money Matter?," NBER Working Papers 6026, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. Jacoby, Hanan, 1997. "Is there an intrahousehold 'flypaper effect'?," FCND discussion papers 31, International Food Policy Research Institute (IFPRI).
  8. 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.
  9. 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.
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