Trade-Offs Implicit in Child-Support Guidelines

Abstract

Recent U.S. federal legislation required states to establish mandatory judicial guidelines for the setting of child-support awards. An equivalence-based approach is used to compare three formulae (two in use, one proposed) to three theoretical benchmarks, to clarify unavoidable trade-offs in the choice of a guideline. Since the economic well-being of children cannot be separated from that of their custodial parent, that which most privileges children's welfare will usually privilege the custodial parent over the absent parent, and what appears more fair between the two adults may be less favorable to the children. Another possible trade-off is between children's welfare and work incentives: The guidelines that prescribe larger awards are those with higher implied marginal tax rates. Despite their work disincentive effects, the formulae with higher marginal tax rates are more favorable to children's economic interests.