Baby Bonuses: Natural Experiments in Cash Transfers, Birth Timing and Child Outcomes

In 2016 the Australian Government expects to spend nearly $25 billion on cash payments to families. These payments reimburse some of the costs of children, from financial costs to time out of the workforce. But they may also be seen as an investment in children: by boosting the incomes of poor parents, we hope to improve their children’s outcomes.

If family payments are an investment in children, what return do they generate? This is a difficult question to answer.  Families receiving different payments tend to differ in other important ways too, and isolating the effect of family payments is hard.  For this reason, economists often look for ‘natural’ experiments, where families receive differing payments because of arbitrary rules or events.

In this paper we use the introduction of the Baby Bonus as a natural experiment. We exploit the sharp date of birth cut off: those born on 1 July 2004 received a Baby Bonus of $3000, while those born on 30 June 2004 went without.  We test if this small boost to family income at birth had any impact on Grade 3 NAPLAN test scores using data on over 300,000 students over five years.

We find no evidence the Baby Bonus improved outcomes in aggregate. Indeed, we can confidently rule out even small effects sufficient to lift test scores by the equivalent of moving up one rank in class of two hundred. There is some evidence of an improvement in test scores for children from disadvantaged families, but this effect is modest and sensitive to assumptions.

Another unintended experiment arising from the Baby Bonus is in birth shifting. Earlier work found over 1000 births were shifted from June to July 2004 by parents in order to qualify for the Baby Bonus.  This generated academic and media concern at the time.  While those born in early July 2004 entered more crowded hospital wards and had higher birthweights, we find no clear evidence of later developmental or educational consequences. This provides some comfort that modest birth shifting by parents and care providers, as seen around weekends, holidays and conferences, is unlikely to harm child outcomes.