IDEAS home Printed from https://ideas.repec.org/p/acb/cbeeco/2024-701.html
   My bibliography  Save this paper

Child-Related Transfers, Means Testing and Welfare

Author

Listed:
  • Darapheak Tin
  • Chung Tran

Abstract

Should government transfers to families with children be means-tested? We revisit this question from the unique Australian policy context, where all child-related transfers are strictly means-tested. Using household survey data, we first demonstrate that means testing effectively directs child benefits to low-income Australian families with children, comprising up to 40% of their gross total income during the childbearing period. Notably, this coincides with the distinct M-shaped labor supply pattern of Australian mothers over the life cycle. Combining these empirical facts with a dynamic general equilibrium overlapping generations model of single and married households with children, we quantify the aggregate and distributional impacts of child-related transfers. Our simulation results demonstrate the significant adverse effects of means testing on work incentives and human capital development among mothers. A structural reform that replaces the status quo means-tested system with a universal system improves female labor supply, output, and overall welfare while also garnering majority support. However, the universal system increases tax burden by 4 percentage points and negatively impacts single mothers-the intended beneficiaries-by reducing their net lifetime income and welfare. In our model, inclusion of means testing is essential for controlling fiscal costs and mitigating the adverse effects of higher taxes. Preserving the existing means-tested system and opting for incremental reforms could potentially result in modest improvements in output and welfare while ensuring a more equitable distribution of welfare gains. Hence, our findings highlight the complex trade-offs between efficiency and equity in designing child benefit programs.

Suggested Citation

  • Darapheak Tin & Chung Tran, 2024. "Child-Related Transfers, Means Testing and Welfare," ANU Working Papers in Economics and Econometrics 2024-701, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2024-701
    as

    Download full text from publisher

    File URL: https://cbe.anu.edu.au/researchpapers/econ/wp701.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
    2. Susan L. Averett & H. Elizabeth Peters & Donald M. Waldman, 1997. "Tax Credits, Labor Supply, And Child Care," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 125-135, February.
    3. Michael Baker & Jonathan Gruber & Kevin Milligan, 2008. "Universal Child Care, Maternal Labor Supply, and Family Well-Being," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 709-745, August.
    4. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1693-1754.
    5. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    6. Shinichi Nishiyama, 2019. "The joint labor supply decision of married couples and the U.S. Social Security pension system," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 277-304, January.
    7. Nicolas Hérault & Guyonne Kalb, 2022. "Understanding the rising trend in female labour force participation," Fiscal Studies, John Wiley & Sons, vol. 43(4), pages 341-363, December.
    8. Alexander Bick & Nicola Fuchs-Schündeln, 2018. "Taxation and Labour Supply of Married Couples across Countries: A Macroeconomic Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1543-1576.
    9. Robert Breunig & Andrew Weiss & Chikako Yamauchi & Xiaodong Gong & Joseph Mercante, 2011. "Child Care Availability, Quality and Affordability: Are Local Problems Related to Labour Supply?," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 109-124, March.
    10. R. Anton Braun & Karen A. Kopecky & Tatyana Koreshkova, 2017. "Old, Sick, Alone, and Poor: A Welfare Analysis of Old-Age Social Insurance Programmes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 580-612.
    11. Darapheak Tin & Chung Tran, 2023. "Lifecycle Earnings Risk and Insurance: New Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 99(325), pages 141-174, June.
    12. Alexander Bick, 2016. "The Quantitative Role Of Child Care For Female Labor Force Participation And Fertility," Journal of the European Economic Association, European Economic Association, vol. 14(3), pages 639-668, June.
    13. Kaygusuz, Remzi, 2015. "Social security and two-earner households," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 163-178.
    14. Shelly J. Lundberg & Robert A. Pollak & Terence J. Wales, 1997. "Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 463-480.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guner, Nezih & Ventura, Gustavo & Kaygusuz, Remzi, 2013. "Childcare Subsidies and Household Labor Supply," CEPR Discussion Papers 9775, C.E.P.R. Discussion Papers.
    2. Sagiri KITAO & Minamo MIKOSHIBA, 2022. "Why Women Work the Way They Do in Japan: Roles of Fiscal Policies," Discussion papers 22016, Research Institute of Economy, Trade and Industry (RIETI).
    3. Christian Bredemeier & Patrick Ndlovu & Sunčica Vujić & Roland Winkler, 2025. "Household decisions and the gender gap in job satisfaction," Scottish Journal of Political Economy, Scottish Economic Society, vol. 72(1), February.
    4. Müller, Kai-Uwe & Wrohlich, Katharina, 2020. "Does subsidized care for toddlers increase maternal labor supply? Evidence from a large-scale expansion of early childcare," Labour Economics, Elsevier, vol. 62(C).
    5. Helene Turon, 2022. "The Labour Supply of Mothers," Bristol Economics Discussion Papers 22/769, School of Economics, University of Bristol, UK.
    6. Gema Zamarro & María J. Prados, 2021. "Gender differences in couples’ division of childcare, work and mental health during COVID-19," Review of Economics of the Household, Springer, vol. 19(1), pages 11-40, March.
    7. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1789-1891, Elsevier.
    8. Reo Takaku, 2019. "The wall for mothers with first graders: availability of afterschool childcare and continuity of maternal labor supply in Japan," Review of Economics of the Household, Springer, vol. 17(1), pages 177-199, March.
    9. Mark Huggett & Wenlan Luo, 2023. "Optimal Income Taxation: An Urban Economics Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 847-866, December.
    10. Chakraborty, Indraneel & Holter, Hans A. & Stepanchuk, Serhiy, 2015. "Marriage stability, taxation and aggregate labor supply in the U.S. vs. Europe," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 1-20.
    11. Marc K. Chan & Kai Liu, 2018. "Life‐cycle and intergenerational effects of child care reforms," Quantitative Economics, Econometric Society, vol. 9(2), pages 659-706, July.
    12. Felix Wellschmied, 2021. "The welfare effects of asset mean‐testing income support," Quantitative Economics, Econometric Society, vol. 12(1), pages 217-249, January.
    13. Zhiyang Jia & Thor O. Thoresen & Trine E. Vattø & Thor Olav Thoresen, 2024. "Explaining the Declining Labor Supply Responsiveness of Married Women," CESifo Working Paper Series 11176, CESifo.
    14. Shelly Lundberg & Aloysius Siow, 2017. "Canadian contributions to family economics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1304-1323, December.
    15. Musab Kurnaz & Mehmet Soytas, 2019. "Early Childhood Investment and Income Taxation," 2019 Meeting Papers 290, Society for Economic Dynamics.
    16. Eric Schuss & Mohammed Azaouagh, 2021. "Combining parenthood and work: transmission channels and heterogeneous returns to early public childcare," Review of Economics of the Household, Springer, vol. 19(3), pages 641-676, September.
    17. Matthias Doepke & Fabian Kindermann, 2019. "Bargaining over Babies: Theory, Evidence, and Policy Implications," American Economic Review, American Economic Association, vol. 109(9), pages 3264-3306, September.
    18. Barua, Rashmi, 2014. "Intertemporal substitution in maternal labor supply: Evidence using state school entrance age laws," Labour Economics, Elsevier, vol. 31(C), pages 129-140.
    19. Max Groneck & Johanna Wallenius, 2021. "It Sucks to Be Single! Marital Status and Redistribution of Social Security [Female labor supply as insurance against idiosyncratic risk]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 327-371.
    20. Robert Breunig & Xiaodong Gong & Anthony King, 2012. "Partnered Women's Labour Supply and Child‐Care Costs in Australia: Measurement Error and the Child‐Care Price," The Economic Record, The Economic Society of Australia, vol. 88(s1), pages 51-69, June.

    More about this item

    Keywords

    Child Benefits; Means Testing; Female Labor Supply; Efficiency; Equity; Dynamic General Equilibrium;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2024-701. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/feanuau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.