Family allowances (also known as child allowances or child benefits) are cash transfers made by governments to families with children. The allowances usually are paid monthly to parents. In 2001 family allowances were provided to families in most industrialized countries and some developing countries. Family allowance schemes vary greatly across countries, especially in terms of their amounts, eligibility criteria, and mode of financing. Furthermore, these schemes have been the subject of significant reforms during the preceding few decades.
History of Family Allowances
Family allowances have a history that goes back to the late nineteenth century. Their origin can be traced to France, where several private and public family allowance schemes were introduced in the 1890s. Under these schemes, allowances were paid to wage earners as a supplement to their wages to help families meet their needs. In the following decades private family allowance schemes gained popularity among employers. To administer these schemes, equalization funds (caisses de compensation) were set up throughout France, each of them grouping a number of employers. By 1923 there were an estimated 120 funds in operation, covering 7,600 firms and distributing family allowances to 880,000 wage earners, or about 20 percent of all wage earners.
These schemes were the object of numerous criticisms. Workers' organizations were critical of the fact that only workers at selected firms benefited from the allowances, that different rates of family allowances were in force in the different equalization funds, and that, since the funds were under employers' control, the allowances could be terminated at any time. Instead, they called for family allowance schemes to be administered by the state. Their call
was answered in 1932 with the adoption of a state-administered family allowance scheme that extended allowances to all wage earners with children. In 1939 the minimum family allowance rates were made uniform across regions (départements).
In the other industrialized countries, the adoption of state-administered universal family allowance schemes was preceded by various other schemes, including widows' and orphans' pensions (introduced in the 1910s and 1920s in several countries), family cost-of-living bonuses, and assistance schemes for large families. Aimed at helping families financially, several of these earlier schemes were targeted at low-income families and/or were restricted to large families. By 1949 universal family allowance schemes were in place in 15 industrialized countries.
During subsequent decades, family allowance schemes were adopted in most other industrialized countries, with the notable exception of the United States. In the 1950s and 1960s these schemes underwent various changes, such as the harmonization of rates across different categories of workers, the elimination of means tests, and the increase in coverage to include all children. (Previously, allowances were often provided beginning only with a family's third child.) Additional programs were introduced to provide further assistance to low-income families and single-parent families.
This historical expansion of state support for families ended in the 1980s. Restricted budgets and growing levels of unemployment led governments in Australia, Canada, Italy, New Zealand, Portugal, and Spain in the 1980s and 1990s to impose means tests on previously universal family allowances or to replace them by other means-tested schemes.
Trends in the Value of Allowances in Selected Countries
The size of the allowances received by families varies substantially across countries. In Western Europe in 1999 the highest allowances for a two-child family were found in Luxembourg, Germany, and Belgium. In Luxembourg the amount exceeded $300 (U.S.) per month, more than 14 percent of the average monthly earnings of a production worker.
Figure 1 shows the trends in the value of allowances for a two-child family in selected countries, expressed as a percentage of the average monthly earnings of a production worker. Between 1980 and 1999 the value decreased in Belgium, the United Kingdom, and Spain. In Germany it strongly increased after a major reform in 1996. It should, however, be noted that family allowances represent only one form of public financial support for families. Tax relief for children also is provided in several countries, along with other means-tested benefits. The country rankings therefore vary depending on the type of cash support considered. They also vary by the age and number of children, household income, and family type.
Effects of Family Allowances on Welfare and Fertility
Although mainly intended as a welfare benefit for families with children, family allowances have also been seen by some governments as a way to encourage parents to have more children. Such pronatalist attitudes prevailed in France, Germany, Italy, and Spain during World War II and have since been observed (in some periods) in various other countries, such as Singapore and Israel. In countries where pronatalist objectives have dominated, allowances have tended to be larger for children of higher birth order and to be supplemented by generous birth grants.
The effect of such allowances and grants on fertility is questionable. Blanchet and Ekert-Jaffé (1994) have estimated that family allowances like those provided in France have resulted in a fertility rate about0.2 child higher. On the basis of cross-national data from 22 countries and a time series spanning the period 1970–1990, Gauthier and Hatzius (1997) have estimated that a 25 percent increase in family allowances would result in an increase in the total period fertility rate of 0.07 children per woman. Cash support for families may encourage parents on average to have more children, but the effect is very small.
It sometimes is argued, especially in the United States, that means-tested cash benefits may have the unintended consequence of encouraging low-income families, single mothers, and teenage girls to have children. The empirical evidence, however, suggests that this is not the case, or that any such effect is very small. Similarly, family allowances and other types of cash benefits for families with children have been found to have no effect or a limited effect on women's likelihood of marrying or divorcing, their use of welfare, and their labor force participation. The same is true of the provision of maternity and childcare benefits and child care facilities. The decision to have a child or to withdraw from the labor market has undeniable economic consequences. Family allowances and other types of support for families, however, appear to have limited effects on these decisions.
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Anne H. Gauthier