Who Benefits from Child Benefit?
Institute for Fiscal Studies (IFS)
University of Kent - School of Economics; Centre for the Economics of Education, London School of Economics
Economic Inquiry, Vol. 50, Issue 1, pp. 153-170, 2012
Governments, over much of the developed world, make significant financial transfers to parents with dependent children. For example, in the United States the recently introduced Child Tax Credit (CTC), which goes to almost all children, costs almost $1 billion each week, or about 0.4% of GNP. The United Kingdom has even more generous transfers and spends an average of about $30 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. In the United Kingdom 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 dollar 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 toward their children that they completely insure them against shocks.
Number of Pages in PDF File: 18
JEL Classification: I38, D79, D12Accepted Paper Series
Date posted: January 6, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.688 seconds