Who benefits from child benefit?

Governments, over much of the developed world, make significant financial
transfers to parents with dependent children. For example, in the US the
recently introduced Child Tax Credit (CTC), which goes to almost all children,
costs almost $1billion each week, or about 0.4% of GNP. The UK has even
more generous transfers and spends about $25 a week on each of about 8
million children – about 1% of GNP. The typical rationale given for these
transfers is that they are good for our children and here we investigate the
effect of such transfers on household spending patterns. The UK is an
excellent laboratory to address this issue because such transfers, known as
Child Benefit (CB) have been simple lump sum universal payments for a
continuous period of more than 20 years. We do indeed find that CB is spent
differently from other income – paradoxically, it appears to be spent
disproportionately on adult-assignable goods. In fact we estimate that as
much as half of a marginal pound of CB is spent on alcohol. We resolve this
puzzle by showing that the effect is confined to unanticipated variation in CB
so we infer that parents are sufficiently altruistic towards their children that
they completely insure them against shocks.