The cost of children - Methods and Bandwidths

How much resources do families with children need relative tochildless households? Which methods are suitable to measuring suchcosts of children? These questions are highly relevant, not at leastwhen it comes to calibrating the generosity of public transfers, suchas means-tested minimum income schemes. This paper reviews thevast literature on the cost of children and equivalence scales, high-lighting the blind spots of scholarship and summarising the empiricalestimates of child-costs in Austria. We begin with an assessment of anumber of methods applied to compute the costs of children, showingthat no single approach outperforms the others in all dimensions. Inview of their theoretical foundations, the most popular approaches inAustria are subject to criticism in the international literature.Given the broad variety of methods, we argue that the purpose ofthe analysis is crucial to the choice of the methodological approach.The costs of children computed for assisting prospective families with their financial planning will be an ill-suited evidence-base for the design minimum income schemes. The meta-analysis of the costs of children in Austria suggests that the needs of the first child range between one and two thirds of an adult’s needs. At the same time, the evidence for the existence of economies of scale is ambiguous. Constructing bandwidths for child costs shades the diversity of theresults, shaped by different methodological approaches. Deriving costs in currency units crucially depends on the assumptions made regarding the reference value of the needs of childless households. Looking forward, our results point out that future attempts to compute the costs of children should pay particular attention to cap-turing the living conditions of single households, multigenerational households and patchwork families. At the same time, research needs to address the heterogeneous needs of households along the income distribution.

City of Vienna