A theory of child targeting

There is a large empirical literature on policy measures targeted at children
but surprisingly very little theoretical foundation to ground the debate
on the optimality of the different instruments. In the present paper, we examine
the merit of targeting children through two general policies, namely
selective commodity taxation and cash transfer to family with children. We
consider a household that comprises an adult and a child. The household behavior
is described by the maximization of the adult’s utility function, which
depends on the child’s welfare, subject to a budget constraint. The relative
effects of a price subsidy and of a cash benefit on child welfare are then derived.
In particular, it is shown that ‘favorable’ distortions from the price
subsidies may allow to redistribute toward the child. The framework is extended
to account for possible paternalistic preferences of the State. Finally,
it is shown that, in contrast to the traditional view, well-chosen subsidies
can be more cost effective than cash transfers in alleviating child poverty.