Income effects and labour supply: evidence from a child benefits reform

Jensen, Mathias Fjællegaard and Blundell, Jack (2023) Income effects and labour supply: evidence from a child benefits reform. Journal of Public Economics, 230. ISSN 0047-2727

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Abstract

In this paper, we exploit a unique and unexpected reform to the child benefit system in Denmark to assess the effects of child benefits on parental labour supply. A cap on child benefit payments in 2011 led to a non-negligible reduction in child benefits for larger families with young children while leaving child benefits for smaller families unchanged. The differential impact of this policy represents an opportunity to assess the causal impact of child benefit programmes on the labour supply of mothers and fathers. Using a difference-in-differences strategy, we find that the reduction in benefits leads to a substantial increase in the labour supply of mothers. Mothers respond to the policy at both the intensive and extensive margins, with the latter outweighing the former, and the effect persists after controlling for fertility-related family characteristics. To fix preferences for additional children across treatment and control groups, we use data on parents’ medical consultations on sterilisation, a common procedure in Denmark.

Item Type:	Article
Additional Information:	© 2023 The Author(s)
Divisions:	LSE Centre for Economic Performance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility; Family Planning; Child Care; Children; Youth J - Labor and Demographic Economics > J1 - Demographic Economics > J16 - Economics of Gender; Non-labor Discrimination J - Labor and Demographic Economics > J1 - Demographic Economics > J18 - Public Policy J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J22 - Time Allocation and Labor Supply
Date Deposited:	12 Jan 2024 10:33
Last Modified:	13 Jan 2024 00:08
URI:	http://eprints.lse.ac.uk/id/eprint/121357

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