The Impact of the German Child Benefit on Child Well-Being

The German Child Benefit (“Kindergeld”) is paid to legal guardians of children as a cash benefit in order to satisfy the constitutional requirement that children’s minimum existence not be taxed. This study employs exogenous variation in the amount of child benefit received by households in the German Socio-Economic Panel to investigate the extent to which these various changes in Child Benefit have translated into an improvement in the well-being of the children. Although the data set does not contain information regarding direct measures of child well-being, it allows for an investigation of household expenditures and behaviors that in return impact the well-being of childen. I estimate the impact of changes in the child benefit on the probability of owning a home, the size of the home, the probability of owning a car, food expenditures, as well as the probability of smoking and alcohol consumption behavior. I use household fixed effects specifications and control for time-varying covariates such as other types of household income, household composition, number of children in the household in order to cleanly identify the effect of child benefit income. The paper informs policymakers regarding the efficacy and effectiveness of the child benefit. ∗Department of Economics, Louisiana State University, 2128 P. Taylor, Baton Rouge, LA 70803, USA.