Working Paper: NBER ID: w21101
Authors: Lauren E. Jones; Kevin S. Milligan; Mark Stabile
Abstract: A vast literature has examined the impact of family income on the health and development outcomes of children. Income may improve child outcomes through two mechanisms. First, income may improve development outcomes if it improves a family’s ability to purchase direct inputs into child education and health production such as reading material, educational equipment, and health care. Second, by reducing stress and conflict, additional income helps to foster an environment more conducive to healthy child development, regardless of the nature of specific expenditures. In this paper, we exploit changes in refundable tax benefit income in Canada to study these questions. Importantly, our approach allows us to make stronger causal inferences than has been possible in existing studies. Using variation in child benefits across province, time, and family type, we study expenditure patterns of families receiving child benefits. Our findings suggest that additional income may improve outcomes through both mechanisms: some benefit income is spent on direct education and health inputs, while some is spent on everyday items likely to improve the general conditions children face. Additionally, some families reduce spending on risky behavior items. Spending responses to benefit generosity appear to vary by income.
Keywords: Child benefits; Family expenditures; Income transfer programs; Child development
JEL Codes: H51; H53; J18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| additional income from child benefits (J13) | family spending patterns (J12) |
| income below the 25th percentile (I32) | increase spending on education (H52) |
| child benefits (J13) | increase in spending on basic household needs (D12) |
| child benefits (J13) | significant decreases in expenditures on risky behavior items (D12) |
| benefit income (E25) | healthier spending choices (H51) |
| spending responses to benefit generosity (D64) | vary by income level (I24) |