Although a child allowance has never been formally implemented or evaluated in the US as a statewide or federal policy, evidence from cash transfers in Alaska and North Carolina provide some insight into how such an allowance could affect child and parent outcomes. In addition, rigorous simulations from research groups including The Century Foundation, the Russell Sage Foundation, and the National Academies of Sciences, Engineering, and Medicine (NASEM) have provided estimates, based on existing policies such as the child tax credit, for how a child allowance could impact child poverty and family economic security. This research is discussed below, grouped by the six policy goals for which evidence is currently available: Parents’ Ability to Work; Sufficient Household Resources; Healthy and Equitable Births; Parental Health and Emotional Wellbeing; Nurturing and Responsive Child-Parent Relationships; and Optimal Child Health and Development.
Parents’ Ability to Work
Basic income proposals are often met with criticism regarding the potential to depress labor force participation, given that such a transfer would be received regardless of employment and could supplant earned income. However, evidence from Alaska’s Permanent Fund Dividend and from a cash transfer study in North Carolina, in addition to international experiences with child benefits, suggests that these worries may be unfounded or overstated.
A 2010 study took advantage of a natural experiment in North Carolina in which a casino was opened on the Eastern Cherokee reservation, and portions of the profits were provided every 6 months to Native American families (all adult tribal members received the payment, regardless of family composition, income, etc.), but not to the non-Native American families in the same 11 counties.29 These groups formed the treatment and control groups, providing an opportunity to examine the effects of an external source of income on child and family outcomes. Although the additional income led to improved educational and social outcomes for youth in the treatment group (described in subsequent sections of this review), the authors did not find significant differences in parental employment, suggesting that “households do not alter their labor participation in response to this additional household income” of roughly $3,900 per year (p. 92).29
A 2019 working paper examined the impacts of Alaska’s dividend on employment and hours of work for both men and women.21 The authors found that the additional income in the economy increased demand for labor, especially in service and retail sectors. For men, each additional $1,000 in dividend funds per individual increased the probability of employment by 1.6 percentage points. Meanwhile, the dividend had no effect on the probability of women’s likelihood of being employed, but was linked to a modest decrease of about 0.91 hours worked per week (on average) among those who remained in the labor force. For women with children under age 5, the reduction in hours worked was greater than for women with older children or no children—a reduction in hours worked of about 1.96 per week. The authors did not measure how this time was re-allocated, but they posited that some of the time may have been invested in children, which could potentially have positive impacts on children’s development. Overall, combining the impacts on men and women led to an annual contraction in labor market activity of 0.2 percent in this study—driven by the modest reductions in hours rather than exits from the labor force altogether. The authors consider this to be evidence that basic income policies have no significant adverse effect on employment, and can even increase employment among some groups because of the increase in the demand for goods and services.
International research suggests very small and heterogeneous effects of universal child benefits on parental employment in higher-income countries. For example, evidence from a study of Germany’s 1996 child benefit reform revealed that on average, mothers with a working partner reduced their own weekly work time by about 1 hour after the reform (conditional on employment), but their employment rates did not change.30 The study found that single mothers saw an increase of 2.9 percentage points in employment alongside a decrease in 0.8 hours worked per week (on average).
Research on Canada’s benefit found small reductions in married women’s labor force participation (1 percentage point) and weekly hours worked (1 hour), and even smaller reductions for men (less than half a percentage point decline in labor force participation, and a two-minute decline on average in weekly hours worked).31 The effects were greatest among married women with lower educational attainment, who saw a 3.2 percentage point decline in labor force participation. As in other studies examining the relationship between child benefits and parents’ time working, the author hypothesized that mothers may have re-allocated time towards caregiving activities, but this was not measured in the study.
As a corollary to the concerns about a child allowance or UBI disincentivizing work, some arguments anticipate that a reduction in earned income would offset some of the positive effects of cash transfers. However, evidence from studies on unearned income in the US (including studies on lottery winners) suggests that the effects would be small. Evidence from a number of studies on cash transfers converge on an income effect of about -0.1, which suggests that “a 10 percent increase in unearned income will reduce earned income by about 1 percent” (p. 1).36
Sufficient Household Resources
By design, a child allowance policy is intended to directly impact the policy goal of sufficient household resources for families with children by providing a reliable source of supplemental income. Research can help determine the magnitude of the impact of such a policy on household poverty and discern whether cash transfers have an effect on earned income, which is one concern that skeptics have raised about UBI policies.
In the international context, universal child benefits in 15 OECDix countries have reduced poverty in households with children by up to 5 percentage points on average.3 A number of simulation studies have estimated how a child allowance in the US could impact poverty, especially in comparison to existing policies such as the child tax credit. For example, a 2018 study co-authored by a group of prominent child policy scholars estimated that a $250 per month, per child allowance could reduce child poverty by 6.4 percentage points (or 40 percent).2 Their proposal also examined a tiered model, in which children under age 6 would receive a slightly higher allowance at $300 per month, and this model produced a greater reduction in young child poverty. The study also assumed that the child allowance would be implemented alongside the elimination of the child tax deduction and child tax credit, but with the EITC and TANF programs kept intact. The authors estimated that the net cost of a child allowance policy, after factoring in savings from the eliminated policies, would range from $66 billion to $105 billion depending on the design of the allowance (compared to $97 billion spent annually on the child tax credit and tax deduction). This finding indicates that for a similar or lower annual cost, a child allowance could replace some of the current anti-poverty tax policies while achieving a greater reduction in poverty.
An analysis published by The Century Foundation in 2016x compared child tax credit (CTC) expansions to possible child allowance policies and concluded that “child allowances that achieve equal reductions in poverty when compared to expansions of the CTC actually cost less to implement” (p. 2).34 The authors analyzed child allowance policies of varying generosity levels and determined that an annual $2,500 allowance per child under age 6 (alongside the child tax credit) could lift 3.2 million children out of poverty (reducing child poverty by 14 percent or 2 percentage points), and a $4,000 child allowance for all children under age 18 could lift 8.1 million above the poverty level (reducing child poverty by 59 percent or 8.7 percentage points).
The National Academies of Sciences, Engineering, and Medicine (NASEM) conducted a rigorous review of various anti-poverty policies aimed at children and families in a 2019 report, and the study included a simulation of two possible child allowance policiesxi (of $2,000 or $3,000 per year, alongside the elimination of the current child tax credit and deduction). Of the 20 policy scenarios that NASEM analyzed (including increases or expansions in the EITC, SNAP, child care subsidies, and the minimum wage, among others), the child allowance policy of $3,000 per year came closest to achieving the goal of reducing child poverty by 50 percent in the US. The authors determined that such a policy would produce a 5.3 percentage point reduction in poverty (after factoring in possible negative employment effects) and would cost $54.3 billion. As part of a package of policy changes (including an expansion of the EITC, a new child support program, and an increase in the minimum wage to $10.25 per hour), a $2,700 annual child allowance could contribute to a 52.3 percent reduction in child poverty (or 6.8 percentage points, based on the Supplemental Poverty Measure) while also creating over 600,000 new jobs for low-income workers and boosting earnings by $13 billion.
A study by the Columbia University Center on Poverty & Social Policy analyzed the potential impacts of the American Family Act and its proposed expansion to the child tax credit. The authors determined that removing the earnings minimum and expanding refundability (to resemble a child allowance) could reduce the child poverty rate in the US by 42 percent34 or 5.6 percentage points (dropping the rate to 9.3 percent) and would move 4 million more children out of poverty than the child tax credit already does (lifting a total of 6.1 million children out of poverty).49
Evidence from Alaska also corroborates that unconditional cash transfers can mitigate poverty in the US. A 2016 working paper by researchers at the University of Alaska’s Institute of Social and Economic Research determined that the Permanent Fund Dividend (PFD) had reduced poverty rates in the state by 2.3 percentage points over the previous 5 years.50 This means that 25 percent more people would have lived in poverty in the state had it not been for the cash transfer. In particular, the transfer had strong anti-poverty effects for rural Native American individuals and for children. The authors estimated that the PFD reduced the number of children living below the poverty threshold by one-third.
Another study of poverty in Alaska with and without the PFD found that the benefit reduced poverty among residents from 11.4 percent to 9.1 percent, and for rural Native children, the poverty rate was reduced from 32.9 percent to 24.8 percent as a result of the dividend.53
Evidence from Canada also supports the claim that universal child benefits can reduce family poverty.46 In the 2017-2018 Canadian benefit year, the child benefit reduced family poverty by 27 percent, keeping 277,000 families above the poverty line who otherwise would have fallen below. The benefit lifted 37 percent (or 131,600 total) of poor single-parent families above the poverty line.
Some critics of basic income policies have argued that the additional cash may be spent on vices or “temptation goods,” such as alcohol, tobacco, or unhealthy foods. However, a 2015 study of the Canadian child benefit found that spending increased on education, rent, food, transportation, and child care as a result of the policy, but decreased on items such as alcohol and tobacco.44 A 2014 review of global evidence on this issue, conducted by The World Bank, found that cash transfers either have no effect or are linked to significantly lower consumption of such “temptation goods.”45
Healthy and Equitable Births
A rigorous 2016 study of Alaska’s Permanent Fund Dividend found that each $1,000 in additional income provided by the dividend was linked to an increase in birthweight of 17.7 grams and decreased the likelihood of low birthweight by 14 percent. The effect was greatest among lower-educated mothers. The PFD was also found to increase newborns’ Apgar scores, a measure of health at birth, by 0.063 (from an average score of 8.87).38
No other studies were identified that linked cash transfers to better birth outcomes, but given that other policies that increase income (such as the earned income tax credit40 and higher minimum wages41) have been linked to better birth outcomes in rigorous research, it is likely that a child allowance or UBI policy could have a positive effect on healthy births as well.
Parental Health and Emotional Wellbeing
This review identified no rigorous US-based studies of child allowances or UBI policies that examined parental health and wellbeing, but findings from studies of conditional cash transfers and from small pilot programs suggest that parents could benefit from a child allowance. For example, the Family Rewards conditional cash transfer program in New York City and Memphis, Tennessee, found that the income supplement of about $2,000 per year “led to improvements in parents’ reports of life satisfaction and happiness,” and there was evidence that the program improved parents’ self-reported health for those in poorest health at the beginning of the program (p. iii).39
A small basic income pilot targeted at Black mothers in Jackson, Mississippixii found that all 20 participants “reported worrying less because of their met needs” as a result of the $1,000 per month cash transfer.
Finally, a 2011 study of Canada’s child benefit found that the additional income was significantly linked to decreased maternal depression, so it is plausible that a child allowance could have similar effects on mothers’ mental health in the US.43
Nurturing and Responsive Child-Parent Relationships
The 2010 casino cash transfer study described earlier in this review found that some aspects of child-parent relationships significantly improved in the treatment group (Native American families) relative to the control group.29 For example, the authors measured a statistically significant increase of 3 to 5 percent in parental supervision of children (for both mothers and fathers) and a 4 percent increase in “enjoyable” parent-child activities that occur between mothers in the study and their children as a result of the cash transfer.
Optimal Child Health and Development
Poverty has been linked in decades of research to poorer health and developmental outcomes for children.37 A monthly child allowance may mitigate some of these effects, leading to better physical and mental health for young children. This review identified only three US-based studies that examined child health outcomes in the context of an unconditional cash transfer; two of the studies looked at long-term outcomes when the children were teenagers or older.
A 2019 study examined the impacts of Alaska’s PFD on childhood obesity and determined that each additional $1,000 in payments decreased the likelihood of child obesity at age 3 by 4.5 percentage points.20 The authors estimated that if such a dividend were paid throughout the US, “66 thousand annual cases of childhood obesity could be averted, on average, resulting in medical cost savings of approximately $310 million” (p. 2).20
The 2010 casino cash transfer study in North Carolina, mentioned previously, found that the treatment group (Native American children) completed more years of education and reported lower criminal involvement and drug use than the control group (a 22 percent reduction in minor crime activity for 16- and 17-year-olds). The study also found that the income transfer led to an increased Body Mass Index (BMI) for adolescents from families with average incomes below $30,000, but not for those with higher family incomes.52
Another analysis of the North Carolina study found that significantly fewer (30.2 percent) of the Native American adults, who had received the cash transfers as children, had diagnosed psychiatric disordersxiii when they became adults, compared to the control group (36 percent).42 Effects were greatest for those who were in the youngest cohort, who had received the cash transfer for the greatest number of years.
A study of the Canadian child benefit found that the additional family income improved children’s math scores (as part of a test administered for the National Longitudinal Survey of Children and Youth) and decreased the frequency of aggression/social conflict with other children.43
- The OECD is the Organization for Economic Cooperation and Development, an international group of 37 member countries focused on promoting trade and economic progress across the world.
- The report was published prior to the 2017 expansion of the child tax credit that offered $2,000 per child and refunded up to $1,400.
- The proposal included stipulations that the child allowance benefit would be “neither taxable for income tax purposes nor countable for means-tested benefits” (p. 430).
- This pilot is discussed further in the section of this review entitled “How Do Child Allowance Policies Vary Across the States?”
- Results were significant for “any psychiatric disorder,” “any substance use disorder,” “alcohol abuse/dependence,” and “cannabis abuse/dependence,” but not for “nicotine dependence,” “other drug abuse/dependence,” “any emotional disorder,” and “any behavioral disorder.”