The Benefits and Costs of a Child Allowance

Abstract

This article conducts a benefit-cost analysis of a child allowance. Through a systematic literature review of the highest quality evidence on the causal effects of cash and near-cash transfers, this article produces core estimates on the benefits and costs per child and per adult of increasing household income by $1000, which can be used for any cash or near-cash program that increases household income. We then apply these estimates to three child allowance proposals, with the main proposal converting the $2000 Child Tax Credit in the federal income tax code into a fully refundable and more generous child allowance of $3600 per child ages 0-5 and $3000 per child ages 6-17, as enacted for 1 year in the American Rescue Plan. Aggregate costs and benefits are estimated via micro-simulation. Our estimates indicate that making the $2000 Child Tax Credit fully refundable and increasing benefits to $3000/$3600 would cost $97 billion per year and generate social benefits of $929 billion per year. Sensitivity analyses indicate that the results are robust to alternative assumptions and that each of the three child allowance proposals produces a very strong to an extraordinarily strong return for the U.S. population.