Who benefits from child benefit?

Laura Blow, Ian Walker, Yu Zhu

    Research output: Contribution to journalArticle

    18 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)153-170
    Number of pages18
    JournalEconomic Inquiry
    Volume50
    Issue number1
    Early online date15 Dec 2010
    DOIs
    Publication statusPublished - 1 Jan 2012

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