The Effects of Child Benefit on Household Saving

In 2016, a new child benefit was introduced in Poland: a universal benefit for the second and subsequent children in a family and means tested for the first child. Substantial transfers of the new child benefit were granted to 60% of households with children. The generous child benefit, equal to 10% of monthly average household income, caused an unexpected positive income shock for families with children. This paper investigates how the new child benefit affected household decisions to consume or save the child’s income. Applying the difference-in-differences method and Polish Household Budget Survey data for 2012–2018, we find a positive effect of the child benefit on household saving. Our estimates indicate that families obtaining the child benefit (treatment group) increased the saving rate by 8 percentage points after the child benefit reform in 2016. Over time, the control group (not obtaining the child benefit) increased the saving rate by 2.9 percentage points.