The Short- and Long-Term Impacts of Unconditional Non-Work Income Transfers

A growing number of countries and policymakers around the globe are considering the efficacy and merits of providing citizens with unconditional cash transfers (UCTs) with the goal of reducing poverty. However, isolating the causal impact of non-work income on the economic outcomes of households is difficult because they are jointly determined. A reform in Israel’s child subsidy program, implemented in 2003, offers a unique opportunity to provide a comprehensive analysis of the effects of UCTs. Before 2003, the amount of child allowances in Israel varied by the family’s size and by the child’s birth order, such that the allowance increased at an increasing rate for higher parity children in families with 2 or more children. An unanticipated reform in 2003 linearized the payment schedule such that every child, regardless of birth order or family size, receives the same payment. Although the reform led to a large decline in the benefits for all families with 2 or more children, the decline in the monthly allowance for third or higher parity children born right after June 1, 2003, was significantly larger compared to children in similarly sized families who were born right before June 1, 2003. As a result of this arbitrary cutoff date, families with the same number and age distribution of children but with births on either side of the cutoff date received substantially different monthly non-work income transfers for the next 18 years. Importantly, the reform did not generate a differential change in the expected allowance of an additional birth. We aim to study the impact of reducing child allowanced generated by the reform on fertility, household and individual employment and earnings, children’s educational outcomes, and the use of other welfare programs. To achieve these goals, we combine several restricted administrative data sets. Specifically, we combine population registry data for families with births between 2002-2004 with a panel of tax records, and with information on children’s educational achievements in standardized test scores. We also use data on participation in other welfare programs from the National Insurance Institute. The proposed research will be the first to offer a comprehensive, well-identified analysis of the impact of universal non-work income on household and individual outcomes.