Targeting and child poverty

We examine the relative merits of targeting children within the household through price subsidies and cash transfers. To do so, we model the behavior of a household composed of one adult and one child. We then show that ‘favorable’distortions from price subsidies may allow redistributing toward the child and then derive the conditions under which this redistributive scheme is more e¢ cient than cash transfers. The framework is extended to account for possible paternalistic preferences of the social planner and for households composed of two adults with di¤erent preferences. Applied to a continuum of households, our approach is extended to the problem of child poverty alleviation. In contrast to the traditional view, we show that well-chosen subsidies may be more cost e¤ective than cash transfers in reducing child poverty. Key Words : indirect taxation, child bene…t, targeting, intra-household distribution, social welfare, paternalism, labeling. Classi…cation JEL : D13, D31, D63, H21, H31. Acknowledgements: We are grateful to participants to various seminars and conferences (IIPF, PET, ESPE, IEA, RES) for invaluable advice and comments. All errors or omissions remain ours. Correspondence: Olivier Donni, 33 boulevard du Port, 95800 Cergy-Pontoise cedex, France. Email: [email protected] yUniversity College of Dublin, CHILD and IZA zUniversité de Cergy-Pontoise, THEMA, and IZA