Children Directly Benefit from Government Transfers for Families

Direct government transfers like child benefit payments (Kindergeld) are spent on children. Contrary to existing prejudices, parents do usually not misuse child benefits by spending the money on alcohol, tobacco or entertainment electronics. Instead, they invest it in larger family homes, better child care, education and their children’s hobbies. What is more, child benefit payments do no lead to a reduction in the parents’ working hours. These are the findings of a recent study carried out by the Centre for European Economic Research (ZEW) in Mannheim on behalf of the Bertelsmann Stiftung.

To this end, the study examined the purposes for which families use two types of government payments – the child benefit and supplementary parental leave benefits (Landeserziehungsgeld), which are granted in some federal states – in the period between 1984 and 2016 on the basis of data from the German Socio-Economic Panel (SOEP).

The key findings of the study are that for every 100 euros of child benefit, the probability that a child will attend childcare increases by five percentage points. When considered in isolation, the probability of a child attending day-care even rises by ten percentage points for the period after 2000. Since then, institutions for early childhood education seem to have become more important for families, with the availability of day-care facilities and all-day schooling having improved over this period. The findings further suggest that child benefit payments increase the likelihood of children engaging in physical activity (up eight percentage points) or taking music lessons (up seven percentage points for children under six, and eleven percentage points for those between six and 16).

Neither supplementary parental leave benefits nor child benefit payments were proven to have an effect on the purchase or possession of consumer electronics, or lead to an increase in alcohol consumption. Only in the early years of the considered period do the researchers find indications for an increase in tobacco consumption. This effect has, however, not been observed since 2008.

“On the basis of our results, there is no reason to place needy parents under a general suspicion. On the contrary, government transfers are usually spent for the benefit of children. Our results are thereby consistent with international research findings,” says Holger Stichnoth, deputy head of the ZEW Research Department “Social Policy and Redistribution” and co-author of the study. “Putting more trust in parents also makes economic sense since transfer payments are associated with less bureaucracy than providing earmarked funding, as is the case in the educational and participation package, which involves administrative costs of up to 30 percent of its budget – these are funds that definitely do not benefit children.”

For more information please contact

Dr. Holger Stichnoth, Phone +49 (0)621/1235-362, E-mail holger.stichnoth@zew.de