The child allowance policy and household consumption behavior in Japan

We examine the effect of the child allowance policy (CAP) on household expenditure in Japan using a difference–in–difference approach. This study focuses on the impact of cash transfers on junior high school students’ consumption expenditures, a group that has rarely received attention in previous studies. From 2010 to 2012, the CAP was extended to junior high school students, and the amount increased for all children aged below 15 years; this allowed us to use a quasi-experimental research design to identify the impact of the CAP reform by eliminating confounding variations common to all families. Specifically, we clarify the effect of children’s allowance on household consumption expenditure. The results show that (1) after controlling for disposable income, the increase in the CAP increased the spending in eating out only in households with liquidity constraints, while there was no clear effect on child-related goods expenditure and (2) families with junior high school students receiving benefit do not change the household’s saving behavior. While CAP reforms have a small impact on consumption through income effects, we find no evidence that the reforms have a “labeling effect” as they do not increase child-specific consumption.