The Labeling Effect of a Child Benefit System

Abstract

Child benefit systems exist in many countries.While they show a lot of differences in terms of eligibility rules, amounts involved, and implementation (tax deduction, tax credit, or direct benefit), the common motivation for their existence is to increase children's welfare.In the Dutch child benefit system-the case I focus on in this paper-one of the parents, usually the mother, is entitled to an untaxed child benefit amount which only depends on the child's age and the number of children in the household.Thus, child support does not depend on household income, marital status, or labor-market status.As a result, child benefit is exogenous to the household given the presence of children.This is in contrast with the situation in many other countries, including Germany, France, the United Kingdom, and the United States, where government-provided child support is (partly) means-tested; see Jonathan Bradshaw et al. (1993).In The Netherlands, child benefit is gen-