Children and Household Income Packages: A Cross-National Analysis

How does a household's economic situation vary with the number of children in it? The most recent papers in the cross-national literature on the effects of children on the economic status of households have had either of two preoccupations. One is child poverty, the topic of a recent major conference (Koen Vleminckx and Timothy Smeeding, 2001). The other concerns the impact of children on the earnings (both wages and hours) of mothers (e.g., Susan Harkness and Jane Waldfogel, 1999). Our research approaches the problem of child and parental welfare by examining the effects of the presence and number of children on the components of the household's income package (Lee Rainwater and Timothy Smeeding, 1997). After examining the effect of children on ageadjusted disposable income in nine OECD countries, we decompose the effect in each country into a labor-market (earnings and self-employment income) component, a fiscal (tax/transfer) component, and a residual component. We find that cross-national differences in the effect of children on disposable income are determined largely by differences in the effect of children on household earnings, particularly the earnings of wives and single household heads. We also find that countries delivering a generous fiscal package to households with children are typically the countries for which the effect of children on earnings is most negative, and that the negative earnings effect often exceeds the size of the fiscal effect.