ArticlePublisher preview available

The Effects of Child Benefit on Household Saving

Authors:
Barbara Liberda at University of Warsaw
Barbara Liberda
Katarzyna Sałach-Dróżdż at University of Warsaw
Katarzyna Sałach-Dróżdż
Marek Peczkowski at University of Warsaw
Marek Peczkowski
Read publisher preview
Download citation
To read the full-text of this research, you can request a copy directly from the authors.

Abstract and Figures

In 2016, a new child benefit was introduced in Poland: a universal benefit for the second and subsequent children in a family and means tested for the first child. Substantial transfers of the new child benefit were granted: 60% of households with children. The generous child benefit, equal to 10% of monthly average household income, caused an unexpected positive income shock for families with children. This paper investigates how the new child benefit affected household decisions to consume or save the child’s income. Applying the difference-in-differences method using Polish Household Budget Survey data for 2012–2018, we find a positive effect of the child benefit on household saving. Our estimates indicate that families obtaining the child benefit (treatment group) increased the saving rate by 8 percentage points after the child benefit reform in 2016. Over time, the control group (not obtaining the child benefit) increased the saving rate by 2.9 percentage points.
Figures - available from: Journal of Family and Economic Issues
This content is subject to copyright. Terms and conditions apply.
A preview of this full-text is provided by Springer Nature.
Learn more
Content available from Journal of Family and Economic Issues
This content is subject to copyright. Terms and conditions apply.
Vol.:(0123456789)
1 3
Journal of Family and Economic Issues (2023) 44:447–460
https://doi.org/10.1007/s10834-022-09834-3
ORIGINAL PAPER
The Effects ofChild Benefit onHousehold Saving
BarbaraLiberda1 · KatarzynaSałach1 · MarekPęczkowski1
Accepted: 27 February 2022 / Published online: 17 March 2022
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2022
Abstract
In 2016, a new child benefit was introduced in Poland: a universal benefit for the second and subsequent children in a family
and means tested for the first child. Substantial transfers of the new child benefit were granted to 60% of households with
children. The generous child benefit, equal to 10% of monthly average household income, caused an unexpected positive
income shock for families with children. This paper investigates how the new child benefit affected household decisions to
consume or save the child’s income. Applying the difference-in-differences method and Polish Household Budget Survey
data for 2012–2018, we find a positive effect of the child benefit on household saving. Our estimates indicate that families
obtaining the child benefit (treatment group) increased the saving rate by 8 percentage points after the child benefit reform
in 2016. Over time, the control group (not obtaining the child benefit) increased the saving rate by 2.9 percentage points.
Keywords Households· Income· Saving· Family· Child benefit· Poland
Introduction
The family child allowances have been rarely examined
in a household saving framework, as if household income
components were not fungible and the child income was
spent entirely on child consumption. However, research on
household expenditures has revealed that, when the child
benefit was introduced, families were inclined to spend the
child benefits on consumption allotted to children’s needs,
but not entirely (Hener, 2017; Kooreman, 2000; Milligan
& Stabile, 2007, 2011). In this sense, a child’s income is
labeled fungible and can be partially saved.
The life cycle/permanent income theory has predicted
that households smooth consumption by saving transitional
income increases. However, much research has shown that
consumption is sensitive to anticipated income increases
and responds more strongly than is implied by standard
models of consumption smoothing. There is also evidence
that consumption is smoothed when the income change is
unanticipated (Campbell & Deaton, 1989; Denizer etal.,
2002; Flavin, 1993; Liberda etal., 2004; Jappelli & Pista-
ferri, 2010; Kueng, 2018). Saving from child benefit would
depend on households' perception of the additional benefit
income as fully predicted and their expectations of rising
life cycle income. At the macro scale, the effects of child
allowance on household consumption and saving depend
on whether the benefits are universal or means tested and
redistribute households’ income.
A growing literature on policies of granting child benefits
to families has examined many goals of introducing such
systems, for instance, diminishing child poverty and improv-
ing child well-being and health (Kooreman, 2000; Milli-
gan & Stabile, 2011; Shon etal., 2018; Van Lancker & Van
Mechelen, 2015), fostering fertility and increasing family
welfare (Milligan & Stabile, 2009; OECD, 2011; Riphahn &
Wiynck, 2017), parental employment (Magda etal., 2020),
reducing household income inequality (Bargain etal., 2017;
Brzeziński & Najsztub, 2017; Goraus & Inchauste, 2016;
Paradowski etal., 2020), and increasing household wealth
(Hener, 2017; Stephens & Unayama, 2015). Research on
child benefits has also examined other benefits for families
(Cho, 2017; Verbist & Van Lancker, 2016) and other forms
of universal benefits, such as basic income or citizen income
(Atkinson etal., 2017; Milligan & Stabile, 2007).
* Barbara Liberda
barbara.liberda@uw.edu.pl
Katarzyna Sałach
ksalach@wne.uw.edu.pl
Marek Pęczkowski
mpeczkowski@wne.uw.edu.pl
1 Faculty ofEconomic Sciences, University ofWarsaw,
Warsaw, Poland
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
Evaluating the Effects of the 2021 Expansion of the Child Tax Credit: The International Comparative Context
Article
  • Sep 2024
  • ANN AMER ACAD POLIT SOC SCI
We provide an overview of child benefit programs in high-income countries, particularly in comparison to the 2019 and expanded 2021 U.S. Child Tax Credit (CTC). Most countries included in our review provide child benefits that are more generous than the 2019 (and current) U.S. CTC, aligning more closely to the parameters of the now-expired 2021 expanded CTC. We show that while the expanded U.S. CTC was in effect, the U.S. significantly improved its ranking within the Organisation for Economic Co-operation and Development (OECD) in terms of lowering child poverty rates and the effectiveness of its redistribution system on poverty alleviation. Our cross-country analysis further reveals that the refundable and monthly payment structure of the expanded 2021 CTC was in keeping with prevailing models of child benefits internationally.
View
The child allowance policy and household consumption behavior in Japan
Article
  • Sep 2024
We examine the effect of the child allowance policy (CAP) on household expenditure in Japan using a difference–in–difference approach. This study focuses on the impact of cash transfers on junior high school students’ consumption expenditures, a group that has rarely received attention in previous studies. From 2010 to 2012, the CAP was extended to junior high school students, and the amount increased for all children aged below 15 years; this allowed us to use a quasi-experimental research design to identify the impact of the CAP reform by eliminating confounding variations common to all families. Specifically, we clarify the effect of children’s allowance on household consumption expenditure. The results show that (1) after controlling for disposable income, the increase in the CAP increased the spending in eating out only in households with liquidity constraints, while there was no clear effect on child-related goods expenditure and (2) families with junior high school students receiving benefit do not change the household’s saving behavior. While CAP reforms have a small impact on consumption through income effects, we find no evidence that the reforms have a “labeling effect” as they do not increase child-specific consumption.
View
The effect of child benefit on female labor supply
Article
Full-text available
  • Dec 2020
In 2016, the Polish government introduced a large child benefit, called “Family 500+”, with the aim to increase fertility and reduce child poverty. It is universal for the second and every further child and means-tested for the first child. We study the impact of the new benefit on female labor supply, using Labor Force Survey data. Based on a difference-in-differences methodology, we find that the labor market participation rates of women with children decreased after the introduction of the benefit compared to that of childless women. The labor force participation rate of mothers showed a drop of 2–3 percentage points by mid-2017 as a result of the “Family 500+” program. The effect was higher among women with lower levels of education and among women living in small towns.
View
Governing new authoritarianism: Populism, nationalism and radical welfare reforms in Hungary and Poland
Article
Full-text available
Drawing on contemporary academic literature on the rise of authoritarian neoliberalism (Bruff, Rethinking Marxism: A Journal of Economics, Culture & Society, 2014, 26, 113–129; Bruff, The handbook of neoliberalism, 2016, 107–117; Giroux, 2015), the uneven geographies of neoliberalism (Peck, 2010), and authoritarian progress (Bloom, 2015; Brown, Authoritarianism: Three Inquiries in Critical Theory, 2018, 7–44), we aim to trace the rise of new authoritarianism in Hungary and Poland. We argue that the fast‐tracking of radical neoliberal economic policies in conjuncture with the building of an “illiberal democracy” with strong populism and nationalism brings about new ways of negotiating the economic, the political and the social in a post‐2008 landscape. This contemporary insurgence, we would argue, has significant impact on both the welfare state as an institutional structure for social sharing, as well as on the forms and practises of social citizenship. We aim to theorise “authoritarian neoliberalism” as a distinctive regime and draw comparative lessons from Hungary and Poland.
View
View
A Cost-Benefit Analysis of the Official Development Assistance Project on Maternal and Child Health in Kwango, DR Congo
Article
Full-text available
A project on maternal and child health (MCH) was conducted by the Korea International Cooperation Agency to reduce maternal and child mortality rates in Kwango, Democratic Republic of Congo (DRC). The objective of this study was to evaluate the costs and benefits of the MCH project, which was under Official Development Assistance for a period of 3 years from 2014 to 2016. The study conducted a cost-benefit analysis (CBA) using a benefit-cost ratio (BCR). The costs were the total costs incurred in implementing the MCH project. The benefits of the MCH project were estimated as the monetary values of the reduction in maternal mortality rates and the mortality rates of infants and children aged under 5 years. The adjusted costs that converted the time value for 2016 were estimated as USD 1,969,532 as part of the CBA. The benefits of reduced maternal mortality and the mortality of infants and children aged under 5 years were estimated as USD 681,416, USD 4,332,376, and USD 1,710,184, respectively, in monetary terms. The total benefits were estimated as USD 6,723,976 and the BCR was calculated at 3.41. In addition, the benefits were estimated by the different economic assumptions through a sensitivity analysis. The MCH project was economically satisfied under the most conservative assumptions.
View
Reducing poverty and inequality through tax-benefit reform and the minimum wage: the UK as a case-study
Article
Full-text available
  • Dec 2017
Atkinson’s book Inequality: What Can Be Done? (Harvard University Press, 2015) sets out a range of concrete proposals aimed at reducing income inequality, which cover a very broad span but include major changes to the income tax and social transfers system and the minimum wage. These are framed with specific reference to the UK but have much broader relevance in demonstrating how substantial the impact on inequality of such measures could be. This paper assesses the first-round effects of these tax, transfer and minimum wage reforms on income inequality and poverty based on a microsimulation approach using EUROMOD. The reforms involve a significantly more progressive income tax structure, a major increase in the minimum wage to the level which is estimated to represent the ‘Living Wage’, and alternative routes to reforming social transfers – either to strengthen the social insurance element or to restructure the entire system as a Participation Income (a variant of Basic/Citizen’s Income). The results show how the first-round effects of either set of tax and transfer proposals would be to substantially reduce the extent of income inequality and relative income poverty and the paper draws out how the two approaches differ in their effects. The additional impact of raising the minimum wage to the Living Wage is modest, reflecting in particular the position of beneficiaries in the household income distribution and the offsetting effects on household income of the withdrawal of means-tested cash transfers.
View
Fertility effects of child benefits
Article
Full-text available
  • Oct 2017
  • J POPUL ECON
We exploit the 1996 reform of the German child benefit program to identify the causal effect of heterogeneous child benefits on fertility. While generally the reform increased child benefits, the exact amount of the increase varied by household income and the number of children. We use these heterogeneities to identify their causal effects on fertility in a difference-in-difference setting. We apply the large samples of the German Mikrozensus and the rich data of the German Socio-Economic Panel (SOEP). The reform effects on low-income couples are not statistically significant. We find some support for positive fertility effects for higher as opposed to lower income couples deciding on a second birth.
View
View
View
View
Excess Sensitivity of High-Income Consumers*
Article
  • Nov 2018
Using new transaction data, I find considerable deviations from consumption smoothing in response to large, regular, predetermined, and salient payments from the Alaska Permanent Fund. On average, the marginal propensity to consume (MPC) is 25% for nondurables and services within one quarter of the payments. TheMPC is heterogeneous, monotonically increasing with income, and the average is largely driven by high-income households with substantial amounts of liquid assets, who have MPCs above 50%. The account-level data and the properties of the payments rule out most previous explanations of excess sensitivity, including buffer stock models and rational inattention. How big are these "mistakes?" Using a sufficient statistics approach, I show that the welfare loss from excess sensitivity depends on the MPC and the relative payment size as a fraction of income. Since the lump-sum payments do not depend on income, the two statistics are negatively correlated such that the welfare losses are similar across households and small (less than 0.1% of wealth), despite the large MPCs. © The Author(s) 2018. Published by Oxford University Press on behalf of the President and Fellows of Harvard College. All rights reserved.
View