Non-Technical Summary:
Childhood cognitive skills (e.g. intelligence) and non-cognitive skills (e.g. personality) are known to affect subsequent educational attainment, labour-market productivity, savings behaviours, and health outcomes and behaviours. Therefore, a wealth of research has focused on identifying factors that promote the early development of these skills (e.g. family income and parental time investments). Compared to some other factors, little is known about how governmental cash transfers affect the skill development of young children. Income determines the choices households can make regarding whether or not, and how much, to invest in goods and services that foment child development. Therefore, income-support payments may be expected to accelerate children’s skill development. In this study, we examine the effect of the Australian Baby Bonus (a conditional government cash handout of $3,000 introduced on July 1 2004) on the learning, socio-emotional and physical outcomes of Australian children.
Our results suggest that the Baby Bonus was not effective in boosting the learning, socio-emotional or physical health outcomes of pre-school children in Australia. The Baby Bonus also failed to impact parental well-being, parental behaviour and labour supply, which are potential mechanisms via which the cash transfer could have affected children’s human capital formation. Our interpretation is that the income provided by the Baby Bonus was insufficient to help families overcome the ‘shock’ of the birth of a new-born sibling.
Our findings contrast with those for other countries (e.g. the United States and Mexico), in which income-support schemes delivered to new parents had effects on both cognitive and non-cognitive child outcomes. These differences may emerge due to the fact that the Australian Baby Bonus was universal (i.e. it was given to all households conditional on the birth of a new child). In contrast, similar income-support schemes in other countries were targeted at specific sub-populations (e.g. low-income households). In addition to it being non-targeted, the muted effects of the Baby Bonus may also result from its one-off structure.
These findings have important policy implications. They suggest that cash interventions given to the entire population to improve child outcomes and to offset the financial burden of childbirth are at best inefficient and at worst ineffective. The large financial cost of $3,000 per child to the Government budget is not justified as an intervention for the entire population if the goal is to boost children’s skills. Government expenditure should either be directed where the marginal return to income is highest (i.e. to the most disadvantaged families) and towards childcare or other services which have a measurable and direct impact on child outcomes.