Do courts know how to incentivize? Behavioral response of non-resident parents to child support obligations

Abstract

In the case of divorce or separation, there are two kinds of maintenance regarding (minor) children: One parent provides food, housing, etc., the other parent compensates in the form of monthly payments. This study explores whether non-resident parents have responded to changes in the payments as laid down by the courts. Results for parents younger than 50 years old show that a €10 increase in monthly child support obligations decreases the likelihood of having an additional child by about 0.39 percentage points (about 3% at the sample mean). There is only weak evidence of a positive (re) marriage incentive. Furthermore, changing obligations do not have an impact on other post-separation behavior including child care and labor supply. To my knowledge, this investigation is the first causal analysis of unintentional side effects driven by courts’ changes in German child support guidelines. The potential endogeneity of child support obligations is addressed by using the German Socio-Economic Panel (SOEP) data from 1983–2013 and applying individual fixed-effects instrumental variable models.