Income Effects and Labour Supply: Evidence from a Child Benefits Reform

53 Pages Posted: 9 Mar 2022

See all articles by Mathias Fjællegaard Jensen

Mathias Fjællegaard Jensen

University of Oxford - Department of Economics

Jack Blundell

affiliation not provided to SSRN

Abstract

In this paper, we exploit a unique and unexpected reform to the child benefit system in Denmark to assess the effects of child benefits on parental labour supply. A cap on child benefit payments in 2011 led to a non-negligible reduction in child benefits for larger families with young children. The differential impact of this policy represents an opportunity to assess the causal impact of child benefit programmes on the labour supply of mothers and fathers. We find that a reduction in child benefits leads to a large increase in the labour supply of mothers; the effect on fathers is much smaller. Both mothers and fathers respond to the policy at the intensive margin, but the strongest response is from mothers at the extensive margin. The majority of the effects can be ascribed to fertility responses, but even after controlling for fertility-related family characteristics, we find significant increases in labour supply after the introduction of the reform. We confirm this result by using data on parents' medical consultations regarding sterilisation, a common procedure in Denmark. Lastly, despite the fact that the policy was repealed in the year following its introduction, the reform appears to have had a long-lasting effect on labour supply.

Keywords: labour supply, gender differences, child benefits

Suggested Citation

Jensen, Mathias Fjællegaard and Blundell, Jack, Income Effects and Labour Supply: Evidence from a Child Benefits Reform. Available at SSRN: https://ssrn.com/abstract=4053318 or http://dx.doi.org/10.2139/ssrn.4053318

Mathias Fjællegaard Jensen (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

Jack Blundell

affiliation not provided to SSRN ( email )

No Address Available

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