Blow, Laura, Walker, Ian, 1954- and Zhu, Y. (Yu) (2006) Who benefits from child benefit? Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

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.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HV Social pathology. Social and public welfare
Library of Congress Subject Headings (LCSH):	Family allowances, Economic security, Welfare economics, Cost and standard of living, Consumption (Economics)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	6 February 2006
Number:	No.749
Number of Pages:	32
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Great Britain. Treasury
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URI:	http://wrap.warwick.ac.uk/id/eprint/1446

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