The impact of targeting policy on spouses’ demand for public goods, labor supplies and sharing rule

Abstract

This paper studies the impact of targeted unconditional cash transfers on the spouses’ demand for public goods, labor supplies and sharing of resources. We estimate a collective labor supply model with distributional factors which is extended to include preferences over marketable public goods (including child goods). In this way, unlike previous research, we consider the impact of such transfers on the intrahousehold allocation of resources and distinguish between the labeling and recipient effects. We exploit the UK experience and find evidence in favor of the collective model with separable preferences over labor supplies and public goods. This finding implies a recipient effect and not a labeling effect of child benefits. Given the household’s unearned income, the bigger the wife’s bargaining power, the more the resources allocated to public goods (including child goods) and the wife’s private consumption. The results can be useful in the design of family policy which aims to improve the relative welfare of children within the family and alleviate any intrahousehold consumption inequalities.