Less for More? Cuts to Child Benefits, Family Adjustments, and Long-Run Child Outcomes in Larger Families

How to design child benefits relative to sibship size is an open policy question. Families with two or more children have often been the target of more generous support until rafts of cutbacks in the 1990s and more recently after the Great Recession. Less generous benefits might exacerbate resource dilution and poverty risks within larger families to the detriment of child outcomes in domains such as education and health. On the other hand, families might adjust by increasing earnings or decreasing total fertility, and the presence of economies of scale might justify decreasing allowances with the number of children.

Hence, I examine a Dutch reform which curtailed income support to larger families. The new (and still current) child-benefit system came into effect for families with second or higher-order children born from 1 January 1995 onwards. Based on administrative data and a regression discontinuity design, I find little evidence of average reform effects on children’s long-run educational and health outcomes. However, children in low-SES households appear less likely to enrol in the academic track of secondary school and more likely to graduate from college as opposed to university. Rather than compensatory labour supply responses or a decrease in total fertility, I find larger earnings losses for mothers affected by the reform and no evidence of changes in the number of children. In addition, survey evidence suggests that cohorts exposed to the reform were more prone to fall below the poverty line and invested less in child goods, including formal childcare, both in absolute terms and using money from child benefits. The reform may have thus led to income and behavioural effects in the household and induced shifts in children’s educational outcomes, which could call into question the economic rationale of cutbacks.