JOINT RESEARCH CENTER FOR PANEL STUDIESSELECTED DISCUSSION PAPER SERIESSDP2012-004
March, 2013

How the Child Allowance Affects Household Expenditure

Yoshie Kobayashi*【Abstract】
In this paper I have attempted to clarify the effects of “standard of living guarantee”
and “child welfare” on households by employing equivalence scales used for theestimation of child cost. The estimation of child cost for each age group was described.
The results indicated that the child cost increased linearly, peaking in households withhigh school children.
Then I tested the effect on household expenditure patterns by using actual measured
values and estimated values of the child allowance. I verified certain effects, based oneach model, on the standard of living, taking the Engel share as an index. On the other
hand, the effect of the child allowance on the educational expense share is negative,
suggesting that the cash provided is probably used for something other thaneducational expenses. Therefore, the effect on child welfare improvement remains
unverified.

* Keio University Advanced Research Centers

Joint Research Center for Panel Studies
Keio University

How the Child Allowance Affects Household Expenditure
Keio University Advanced Research Centers
Yoshie Kobayashi

I. Introduction
In Japan, many are worried that because the total fertility rate has continuously squeezed
replacement-level fertility and the number of births has decreased,1 the graying of the population
structure will accelerate, and that this circumstance will have a significant effect on the general
economy, social security, and the labor market. Japan offers an extremely thin veneer of social
security for families, compared with other major countries of the Organisation for Economic
Co-operation and Development (OECD). In addition, it has also been pointed out that the birthrates in Italy, Spain, Korea, and Japan, which have low household expenditures, are the lowest in
the world,2 and it is anticipated that these countries will shore up various social insurance policies
targeting families.
According to Tsuya (2003), the social policies for families with small children involve (1) money,(2) time off, and (3) services.3 However, it is also pointed out that Japan’s child allowance andother allowances that provide financial support for child rearing are the lowest among developed
nations, including English-language countries and the countries of Southern Europe. While many
countries offer benefits until the age of 18 years, Japan currently offers benefits only up to the ageof 12,4 it requires proof of parental income, and the child allowance amount of 5,000 yen per childis extremely low by international standards.5
As Japan’s birth rate continues to drop, future measures and policies related to child rearing andfamily are expected to be brought into parity with other developed countries. However, we need to

1 Among the copious literature on trends and factors in the birth rate, Date and Shimizutani (2004) summarized abroad swath of the literature in their empirical research.
2 Katsumata, etc. (2005)
3 Other classifications of family policies include Esping-Andersen and Korpi (1987), Gauthier (1996), McDonald(2004), and Ato (2005).
4 This paper was written prior to the implementation of the child allowance in April 2010.
5 Oshio (1999), Ato and Akaji (2003), and Fukuda (2003) included details of international comparisons of the childallowance. Also, Tsuya (2005) included a comparison of the annual amount of child allowances in Japan and Northern
European countries by converting all to yen for easy reference.

keep in mind that these are micro-level measures for individuals and families, not macro-level
population measures designed to increase the birth rate and affect the scale or composition of the
population. This was agreed upon internationally at the International Conference on Population andDevelopment (ICPD, the so-called Cairo Conference) held in 1994. In Japan, where serious social
issues stemming from population decline are predicted, it is anticipated that the various forms ofpolicy assistance for families will spill over and lead to a recovery of the birth rate without the birthrate standard itself becoming a policy aim.6
Thus, research concerns can be divided into two steps: the first is whether each system and policy
is fulfilling its fundamental purpose; and the second is whether such systems and policies haveactually led to an increase in the birth rate. This paper focuses on the research concerns of the firststep by describing and measuring whether the change the child allowance benefit causes in the
consumption structure of household expenditures contributes to the stability of family life and therearing of children.7
Chapter II describes the purpose and shifts in, and provides a synopsis of, the child allowancesystem. Chapter III introduces a method for estimating the cost of rearing a child by applying anequivalence scale used in the preceding study, and further describes the measurement model that
includes the effect of the child allowance benefit and the data used in the study. In Chapter IV, I
estimate the cost of a child for households with children up through the middle school and highschool years and discuss the age of children who are the target of the child allowance. Chapter V
discusses the research on the effect of the child allowance benefit on the consumption structure ofhousehold expenditures, and also research on whether it fulfills the fundamental purpose of thesystem. Finally, Chapter VI includes my conclusion and a discussion of the tasks ahead.

II. Understanding the child allowance system

1．
．The purpose of the system
The Child Allowance Act, as of December of 2009, states that the purpose of the child allowance
Refer to Tsuda (2005) in “Conflict between Micro and Micro” regarding low-fertility policy. Also, refer to the United
Nations Population Fund (1995, 2004) and Ato (1994) for details on the background and content of the ICPD Programof Action, and especially Satoh (2002, 2005), who wrote about the discussion on reproductive health and rights, which
is an important concept.
7 Due to limitations of space in this paper, I would like an opportunity to publish separately on the effects on infertility
reflected in the concerns of the second step.
6

benefit is “to contribute to the stability of families by providing an allowance to those responsible
for rearing children and also to contribute to the sound upbringing and training of children who willbear the burdens of society in the next generation.”8
However, the new administration of the Democratic Party of Japan, elected in September of 2009,
intends to create a new child allowance that will replace the traditional child allowance andredefine the purpose of such a policy as “to contribute to the growth and development of children
who will bear the burdens of society in the next generation (along with reducing the financial
burden related to the upbringing of children) by providing a child allowance to those tasked withrearing children.”9In either policy, the first half includes a “living-standard social security policy” intended to easethe financial burdens of households rearing children, and the second half includes a “child welfare
policy” intended to ensure the healthy physical and mental development and upbringing of humancapital (Sakaguchi 2004).10
Although it is not a direct purpose, as long as the current child allowance remains a part of asocial insurance policy with an income requirement, there is expected to be a redistributive effect.
Abe (2005) shows the amount of the child allowance benefit for each income class and points outthat despite the income requirement the effect of income redistribution is weak due to the wide, yetthin, benefit. Abe (2003) also makes clear that the effect on income redistribution made by tax
breaks for families with children under the age of 16 was stronger than the effect of the childallowance after systematic reform in 2000; either way, the effects are small.

2．
．Summary and evolution of the policy
The child allowance system was established in 1972, the “first year of social welfare.” Chart 1
displays a synopsis of the system and its evolution. Through that evolution, the system has adapted
to the demands of the times by changing the age range of targeted children, the income requirement
for beneficiaries, and the benefit amount received. In the 1970s, the third child and subsequent

8Child Allowance Act, Chapter 1, General Provisions (Article 1)

9Refer to the Legislative Bureau House of Councillors page, Democratic Party of Japan website. Sections in parentheses
may be omitted.
http://www.dpj.or.jp/news/files/071226houan.pdf
10 However, Takezawa (2006) and Shimazaki (2005) described the three purposes by dividing “child welfare policy”
into children’s “healthy upbringing” and “improvement of resources.”children thereafter were targeted to receive the child allowance benefit, an approach that had strong
implications for income security policy aimed at preventing poverty in households with many
children. When the Equal Employment Opportunity Act for Men and Women was implemented, thebenefit was specified for households with infants at a time when the employment rate of mothers
was remarkably low. After the 2000s, the government expanded the ages of children targeted for the
benefit and eased the beneficiaries’ income limit in order to socially apportion the householdburden of child rearing in response to heightened expectations for child-rearing support.
The newly revised child allowance benefit was increased to a monthly amount of 16,000 yen, andthen in incremental steps to 26,000 yen, without an income limit, and will be provided continuously
until the targeted child completes compulsory education. Its main purpose is to reinforce support
for households during the child-rearing stage.

＜Chart 1＞

III．
．Child cost and the equivalence scale
The first step in this research is concerned with examining the effect of the child allowance
benefit on the “living-standard social security policy” and “improvement of child welfare,” which
represent its most fundamental purpose.
In this research I used the equivalence scale that is used in calculating the child cost and used theEngel food expense share to determine the effect on the living standard; further, I used theeducational expense share to calculate the effect on the child welfare policy of using an educational
expense share.11
Essentially, I should discuss estimates of child cost by taking into consideration not only the
expense of rearing children, but also the utility of having children, the variability of satisfaction,and the psychological and mental burdens associated with child rearing. However, since by theirvery nature such estimates are complicated, most research treats “child cost as comparable tochild-rearing expense.” There are several methods in such cases: for example, there is the methodof estimating child-rearing expense as the sum of actual expenditures, and there is the method of
11
Engel’s food share method and Rothbarth’s adult method provide the estimate equivalence scales. However, I
employed the food share because of the limitation of the data. Also, I employed education expense as a proxy variable
to indicate children’s welfare. However, strictly speaking, education expense is not limited to consumption by children.

measuring it as time cost, but the most widely used method is the one with an equivalence scale,
which estimates the child cost from the perspective of guaranteeing the prior standard of living, inconsideration of the parents’ living standards.12

2．
．Prior Research

In Japan, research on the estimate of child cost based on an equivalence scale has been carriedout by Muto (1992), Suruga (1991, 1993, 1995), Suruga and Nishimoto (2001), Nagase (2001),
Oyama (2004), and Takezawa (2006). Among them, Nagase (2001), Oyama (2004), and Takezawa(2006) used the number of children for each age group as the explanatory variable and did
comparisons of the results.
Nagase (2001) focused on child cost in both short-term and long-term scenarios and estimated theshort-term cost based on the Engel food share method, using the “Family Income and Expenditure
Survey” conducted in 1995. The children’s ages were divided into groups of 6 years and under, 7–
13 years, and 14–22 years; the data formed a mountainlike shape, reaching a peak at 7–13 years
and declining after 14 years.
Oyama (2004) employed the Rothbarth method to derive an equivalence scale using the“Japanese Panel Survey of Consumers” conducted from 1993 to 1999. The children’s age groups
were divided into 0–6 years, 7–13 years, and 14–18 years.
The use of the child cost estimate to examine the child allowance system is a touchstone for bothmy research and research done by Takezawa (2006). Takezawa calculated the equivalence scale
derived from the Engel food share method by employing the “Family Income and Expenditure
Survey” conducted in 2000, but then divided the children’s age groups into 0 years, 1–2 years, 3–5
years, 6–8 years, 9–11 years, and 12 years. He concluded that about 30,000 yen per child was an
appropriate amount, on the assumption that half the amount of the child cost calculated is the ideal
amount for the child allowance.

3．
．Measurement model and estimation method

12

Refer to Suruga and Nishimoto (2001) and Takezawa (2006) for details about understanding child cost.

In the formulation below, F indicates food expense, including eating-out; E indicates educational
expense; C indicates consumption expenditure; and J indicates the amount of child allowance given,
following Tsakloglou (1991):

Ｅ or F ／C ＝ α0 ＋α1

lnC + α2(number of children by age group) ＋α3

J + α4(othervariables)

The estimated food expense share reveals the following:
1. The child cost expressed by the equivalence scale A ＝ exp－α2／α1）
2. The child allowance effect expressed by the equivalence scale B ＝ exp（－α3／α1）

At first, I simply estimated the child cost derived by an equivalence scale without considering
the child allowance, and made comparisons with prior research. As prior research had done, I madeestimates employing a homeownership dummy that included imputed rent, a wife work dummy
variable that includes imputed income from household work, and a residence dummy.
Next, I made estimates by adding an explanatory variable for the child allowance amount toprevious estimates of child cost in order to measure the effect of the child allowance on thestandard of living. To generate the estimate, I used two kinds of values to describe the childallowance value: the actual value measured by the Keio House Panel Survey (KHPS) and the value
estimated from the system. Details about the estimation methods will be described in the following
section. Furthermore, I generated estimates using the educational expense share as the explained
variable to observe the effects on child welfare.
The estimate was made with the ordinary least-squares (OLS) approach using pooled data, a
fixed-effect model utilizing the advantages of panel data, and a random-effect model. The
fixed-effect model helped to remove the individual specific and unobservable effects and the effectsof variables that were not time-dependent, by subtracting the differences of both sides of t period
and t + 1 period. In addition, I used the random-effect model to make an estimate by thegeneralized least-squares (GLS) method on the assumption that the individual specific effect was arandom variable that did not correlate with the explanatory variable.13
13

Baltagi, etc. (2005)

4．
．Data and calculation of child allowance

KHPS was first conducted in January 2004 and has continued until the present. The total numberof those surveyed to date is 13,430. The collection rate is 29.8%. The subjects of the first survey
included 2,000 males and 2,005 females 20 to 69 years old. New cohort, totaling 1,400, have been
randomly selected and added to the survey in 2007, but only the continuous cohort from 2004 to2008 was used for the household budget analysis in this chapter, owing to different samplingtimes.14
In the first survey, those 60 years or older and those with no spouse or child for five years were
excluded, and only the married-couple households and nuclear households consisting of a father,mother, and children were included in the analysis.15 The subject group was limited to householdswith children aged 18 or under for the purpose of estimating the child cost, and households withchildren aged 12 or under for analyzing the child allowance effect, as the children would notreceive the benefit after the end of the sixth grade in elementary school.
In KHPS, the income from the child allowance was included in the social insurance expense.
Thus, about 70% of eligible individuals should have received the benefit in fiscal year 2007, after
excluding those measures that clearly included social security expense, on the assumption that childallowance = social security benefit – annual pension – unemployment benefit.16 However, that
only amounted to a value of about 10%. As Abe (2003) also pointed out, generally the social
insurance expense has a tendency to be underreported. In addition, since the child allowance isdeposited three times a year (February, June, October), there is a significant possibility that
individuals are simply unaware when it has been deposited and therefore underreport when asked
about “income obtained in the previous month.”
Therefore, I made an estimate of the child allowance amount each household received andapplied that number to my analysis. At first, I took the husband’s income or the wife’s
income—whichever was higher—from the previous year as the income limit criterion, and thenRefer to Naoi (2008) for sample attributes.
We used only nuclear households as survey subjects because having other dependent family members would haveaffected the estimation of the child allowance amount. Also, these are the same parameters as Takezawa’s (2006).
Nuclear households represent 77.3% of all households.
16 According to “Fiscal year of 2007 Report on Child-care Allowance Project,” there were 9,259,555 recipients of thechild allowance among 12,979,569 who were eligible for the benefit.
14
15

specified the number of dependent relatives based on the number of children and the dependent
relationship of the spouse. Since the income limit amount was changed, the question of ahousehold’s eligibility for child allowance was determined based on the annual income limit
amount according to Chart 2(a) before 2005 and Chart 2(b) after 2006. The annual income limit
amount was derived by adding the employment income exemption amount and the uniform
exemption of 80,000 yen to the income limit amount (which is the conventionally used figure);from the data, it could not be determined whether there were any additional exemptions. The childallowance amount for households eligible for the benefit was calculated based on the number ofchildren, the ages of the children, and their birth order.
Chart 3 indicates the rate of those estimated to have received a child allowance (the number of thehouseholds who received a child allowance divided by the number of households with children 12
years or younger). The estimated value captures 60% of the recipients, and so the value should beseen as reflecting the real rate of recipients.

＜Chart 2＞＜Chart 3＞

IV. Child cost for each age group and the ages at which a child allowance is payable
I first estimated the child cost, as previous research had done, prior to measuring the effect ofchild allowance, in order to find an equivalence scale.17 Chart 4 shows the results. I compared theresults with the findings of Takezawa (2006), Nagase (2001) and Oyama (2004), who calculated thevalue for each age group.18
The estimated coefficient is not significant among the age group 3–6 years old. However, allother age groups showed significant results. The age group 0–2 years scored less than 1 on theequivalence scale, a result that agreed with the research conducted by Takezawa (2006). This scorecan be attributed either to a decline in eating-out expense for those with infants, since the eating-out
expense is included in the food expenses, as discussed in this paper, or to an increase in expenditure
for various baby goods and clothing, the sizes of which change frequently during this period.
After this period, as the child ages, the burden increases—a 12.8% cost increase for 7–9 years, a
17

See Appendix Chart 1 for a statistical description.

18

However, as mentioned earlier, Oyama (2004) employed the Rothbarth method.

16.8% increase for 10–12 years, 29.5% for 13–15 years, and 31.8% for 16–18 years. Takezawa(2006) and Nagase (2001), who employed the “Family Income and Expenditure Survey,”
concluded that child cost formed a mountainlike shape reaching a peak at 10–12 years old anddeclining thereafter, a conclusion that differs from the results of my research. However, Takezawa(2006) did not make an estimate for the 16–18-year-old group, and Nagase (2001) did not clarify
the difference between households with middle-school-aged children, high-school-aged children,and college-aged children, with all ages ranging from 14 to 22 years combined into one broad age
group. Also, Nagase’s (2001) work differs from my research in not being limited to nuclear family
data, and in controlling for the number of adult family members besides the couple. Oyama (2004)
also divided the age groups rather broadly, into 7–13 years and 14–18 years, thus making no clear
difference between middle-school-aged children and high-school-aged children.

＜Chart 4＞

As shown in Nagase’s work (2001), the child cost based on the Engel-type equivalence scale,depending on measurement methods, shows likely declines among households with children 14–22
years old who are in middle school or high school. However, realistically speaking, it would be
difficult to claim that the parents’ living standard can be improved during this period, as
child-rearing expenses, including expenses for food, education, and other things, increase as thechildren get older.19
In EU countries, the maximum age of children who are targeted by the child allowance system
ranges from 16 years to 20 years. However, since as Chart 5 shows, many countries extend thepayment period to cover the time a child is enrolled in an educational institution, it is quite clearthat the child allowance amounts to a guarantee during the period that parents incur real financial
burdens for the child.
Households with high-school-aged children can receive a financial benefit thanks to plans to
expand the age range of children targeted for the child allowance, now elementary-school age (upto 12 years old), to include middle-school age (up to 15 years old).20 At the same time, a further
Refer to Cabinet Office of Japan, “White Paper on the National Lifestyle 2005,” Fig. 3-1-10, p. 130.
Strictly speaking, this is rendered “the first March 31 following the day the child reaches the age of 15 years” in theChild Allowance Act, Chapter 1, General Provisions Article 3.

1920

benefit comes from plans to eliminate high-school tuition. However, expenses other thantuition—such as transportation fees, material fees, expenses for uniforms, and expenses for
extracurricular activities—are still placed squarely on the shoulders of parents, and given the
expense of sending children to college, including tuition for cram school, summer courses atcollege preparatory schools, and the fees for mock exams, the burdens shouldered by parents
increase even more.

＜Chart 5＞
V. How the child allowance affects household expenditure patterns
Chart 6 shows the results of testing performed on the Engel-type food expense share using
KHPS actual measurement values of child allowance, and Chart 7 shows the results of testing
conducted on the same share using estimated values of child allowance. Following Engel’s Law, thehigher the consumption expenditure, the more significant will be the decline in food expense share.
Since the child allowance shows a strong correlation with the number of children in the younger
cohorts, such as 0–2 years old and 3–5 years old, I used a number that includes all children, without
dividing them into age groups, as the explanatory variable. The higher the number of children, themore significant is the increase in Engel share.21
Model 2 was derived by adding the variables of the homeownership dummy, wife’s work
dummy, and residence dummy, employed in estimating the child cost, to the model generated by
the OLS estimate using only fundamental variables. The results of this model indicate that in thecase of homeownership and a working wife, the food share is significantly high; further, the foodshare of such residences is higher compared with counties and villages.
To compare the fixed-effect model and the OLS-estimate model, I conducted an F-test using ui= 0 for individual specific effects of all individuals as the null hypothesis. As a result, the null
hypothesis was rejected and the fixed effect was employed instead. Then, we conducted theHouseman formulation test by stipulating the correlation of the individual specific effect andexplanatory variable Cov(ui, xi) = 0 as the null hypothesis in order to compare the fixed-effectmodel and the random–effect model. The null hypothesis was rejected and the fixed effect was

21 Even in measurements that use the number of children as a dummy variable, the number of children and foodexpense share are recognized as having a linear relationship.

employed instead.22 The fixed effect was employed in the same way in the child allowance
estimated value model (Chart 6) and the estimation of educational expense share (Chart 7 and Chart
8).
The actual value of almost all the models showed a negative effect stemming from the childallowance. When measured by the equivalence scale, there was a decrease in the Engel share byapproximately 3% to 23%,23 while a certain effect was seen in the maintenance of the standard ofliving. However, the fixed-effect model has not provided any significant coefficient. The effect of
the child allowance estimated value in Chart 6 indicates that in the OLS model and therandom-effect model, the effect of the child allowance is negative, while in the fixed-effect model,
the child allowance has a modest yet significant positive effect. Taking into consideration
unobservable household-specific consumption patterns as well as the results of the actual
measurement value entirely mitigates the effect on the food share. This case shows that the standardof living cannot always be guaranteed by the child allowance; on the other hand, it also
demonstrates the limitation of simply using the Engel food share as an index of living expense.

＜Chart 6＞ ＜Chart 7＞

To observe the effects of the child allowance on “child welfare,” which is the other aim of thechild allowance, Chart 8 and Chart 9 show the results of an analysis using the educational expenseshare as the explained variable.24 The academic background of parents has a strong effect onchildren’s educational expenditure, and the educational expenditure notably increases amongfamilies with a mother who is better educated.25 Thus, I used high school graduation as themothers’ last academic degree, which served as the reference category for the dummy variable.
The educational expense share as well as food expense share indicates negative as household
expenditure increases. As the number of children increases, the educational expense share also
increases, though it is not significant in the fixed-effect model employed in this test. Once again,
when taking into consideration unobserved household-specific characteristics, such observations
The results of the F-test and the Houseman formulation test are noted in the estimation model in each chart.
The equivalence scale is noted at the bottom of each model in Charts 6 and 7.
24 When education expense rather than education expense share was made the explained variable, the positive or
negative significance of the results obtained was unchanged.
25 Tsuya and Choe (2004）22
23

cannot be explained purely by the number of children.
The observed value of KHPS does not indicate any significant effect on education expense sharein the fixed-effect and random-effect models. Further, the estimated value supports a negative effecton educational expense share in the OLS estimate and the random-effect model but fails to indicate
any significant results in the fixed-effect model. The negative effect indicates that the childallowance provided probably is not spent on educational expenses but rather is used for otherexpenses and thus has no effect on the improvement of child welfare.
In previous research, Tanaka (2008) tested the relationship between the expansion of the childallowance and expenditure on and saving for children. The effects on “expenditure on children” and“saving for children” were not clear among households with children in the late elementary grades,
who became eligible for the child allowance thanks to the 2006 reform of the system.

＜Chart 8＞＜Chart 9＞

VI. Conclusion and Future Issues
In Japan, with the inauguration of a new administration and its plans to establish the childallowance per its manifesto, debates have raged over the issue of financial support for the rearing ofchildren. The primary cause of confusion on this issue is that in response to the demands of thetimes, the administration has changed “the aim” of the cash payment system called the childallowance under the banner of its original stated purpose (see Chart 1 for reference). The current
child allowance focuses more on “achieving a society in which it is easier to bear and rear a child”
against the backdrop of a reduced birth rate. However, it must first be admitted that such policies
have not had a direct effect on improving fertility, thereby achieving their original purpose as laidout in the agreement at the Cairo Conference, but have rather come to be expected to improve
fertility as a secondary effect.
In this paper I have turned to the essential purpose of the child allowance rather than its “aim,”
and have attempted to clarify the effects of “standard of living guarantee” and “child welfare” onhouseholds by employing equivalence scales used for the estimation of child cost. The estimationof child cost for each age group was described in Chapter IV. However, when households having
children in middle school or high school were included among the subjects, the results indicatedthat the child cost increased linearly, peaking in households with high school children.
Beginning in the 1970s, the child allowance benefit was provided to households with infants as
an antipoverty measure to help households with many children. This provision was due to efforts totarget primarily households having infants with mothers who had difficulty finding employment,
efforts that reflected societal trends aimed at a gender-free society that would enable fullparticipation by both men and women, trends that started in the last half of the 1980s. However, thefact is that people do not spend much money on infants or elementary school children. Judging
from the standpoint of the original purposes of “guaranteeing a standard of living” and “childwelfare,” the households who really need financial support for rearing children are surely the ones
with children in their late teens, who have completed compulsory education and need food, clothing,and shelter as much as adults do, as well as school tuition and a variety of experiences for
expanding their sphere of activities. In Japan, the age of children eligible for the child allowance isstill low when compared with ages in EU countries.26
In Chapter V, I tested the effect on household expenditure patterns by using actual measured
values and estimated values of the child allowance. I verified certain effects, based on each model,on the standard of living, taking the Engel share as an index. On the other hand, the effect of thechild allowance on the educational expense share is negative, suggesting that the cash provided isprobably used for something other than educational expenses. Therefore, the effect on child welfare
improvement remains unverified. However, there is a drawback in that the educational expense
variable used in the estimation is not limited to children. Therefore, I are planning to conduct asurvey containing additional survey items, such as educational expenses, educational entertainment
costs, and clothing and shoe costs only for children, in order to re-verify the results found in thisstudy.27
Full-scale policies for families were available only in developed countries in the West, andattempts at such policies in Japan preceded attempts in other Asian countries, which had traditionalfamilistic cultures. At a time of radical reform such as this, it is necessary, going forward, tocontinue carefully verifying the effects on household expenditure patterns and birth rates.
The child allowance is provided only through junior high school. The educational expense burden shouldered by ahousehold for a high school student is reduced by free high school education. However, this does not cover theincreased portion of the child’s living expenses.

26

27This will be conducted as “Japan Household Panel Survey” and sponsored by Keio University.

＜Appendix Table 1＞

Acknowledgments

Data for the analysis found in this paper based on KHPS was provided by Keio University
Graduate School of Economics and Graduate School of Business and Commerce and the Kyoto
University Institute of Economic Research Cooperative Global COE Program. I would like toacknowledge and thank the discussants and other participants for their comments on the reports of
the 62nd Annual Meeting of the Population Association of Japan, the 2010 Spring Meeting of theJapanese Economic Association, and the Labor Market Research Committee (June 2010). I also
thank Keio University Professor Noriko Tsuya for her guidance and advice.

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Chart 1. Change in child allowance

Main aim

Poverty
prevention forhouseholds withmany children

Systemchangeyear

Targeted children

Recipient's income limit
amountAllowance amount

1972

After the third child, through theend of middle school

2000,000 yen

3,000 yen

1974〟

3220,000 yen

4,000 yen〟

415,0,000 yen

5,000 yen

3406,000 yen（5589,000 yen）

2,500 yen (the second child), 5,000 yen（after
the third child）

1975

1986
Income security
for householdswith infantsChild support

1992

The first child and subsequent
children, 3 years old or under2000

After the first child and subsequent
children finished preschool

2001

〃

2004

2006

Child
allowance

The second child until 2 years old;
the third child and subsequent
children until the end of middle
schoolAfter the first child, through theend of the third year of elementary
schoolAfter the first child, through theend of the sixth grade ofelementary school

gradually increases

5,000 yen（The first and second child), 10,000
yen（after the third）〃

5963,000 yen(7800,000 yen）

〃

〃

〃

7800,000 yen（8600,000 yen）

〃

2007

〃

〃

5,000 yen（the first and second）, 10,000 yen（the third child and subsequent children）
except 10,000 yen flat for under 3 years old

2010

After the first child, through theend of middle schoolNone

13,000 yen（half of the full amount—26,000
yen—implemented）

Note 1. Prepared with reference to Oshio (1996), Child allowance system study group (2004), Shimazaki (2005), Abe (2003), Takezawa (2006), and Ministry of Health, Labour and Welfare (2008)

Note 2. The income limit amount is for three independent family members after 1986, and prior to then five members

Note 3. The income limit amount in ( ) is a case of special benefits and targeted for employee pension subscriber households.

Chart 2. Annual income limit amount for child allowance payment (unit: 10,000 yen)(a) Fiscal year 2001-2005(b) From fiscal year 2006 to present

National pension subscriber

Empolyee pension subscriber

National pension subscriber

Employee pension subscriber

Number ofdependent
familyIncome amount

Annual income base

Income amount

Annual income base

Number ofdependents

Income amount

Annual income base

Income amount

Annual income base

0

301

453.8

460

652.5

0

460

652.5

532

733.3

1

339

501.3

498

695.6

1

498

695.6

570

775.6

2

377

548.8

536

737.8

2

536

737.8

608

817.8

3

415

596.3

574

780.0

3

574

780.0

646

860.0

4

453

643.8

612

822.2

4

612

822.2

684

902.2

5

491

687.8

650

864.4

5

650

864.4

722

944.4

6

529

730.0

688

906.7

6

688

906.7

760

986.7

7

567

772.2

726

948.9

7

726

948.9

798

1028.9Note 1. The annual income base is the sum of the employment income exemption amount and the flat exemption of 80,000 yen.

Note 2. The shaded area is the value used as the standard value (couple plus 2 children).
Note 3. The annual income base of (a) is applied to the data for years 2004–2006; the annual base limit amount of (b) is applied to the data for years 2007–2008.

(Unit: %) Chart 3. The recipient rate of child allowance based on number of children for each number of children

Number of children

Panel 1
(2004）

Panel 2
(2005）

Panel 3(2006）

Panel 4(2007）

Panel 5(2008）

1

15.2（29.2）

10.0（39.3）

5.1（36.6）

6.9（65.2）

7.8（62.9）

2

20.9（36.9）

11.6（49.4）

12.6（55.5）

11.7（64.5）

10.4（66.1）

3

14.3（49.5）

10.5（46.5）

12.6（55.9）

6.5（61.5）

9.2（60.2）

450.0（50.0）―(57.1）

40.0（62.5）

20.0（62.5）

20.0（77.7）

Note 1. Recipient rate = Recipient household number/the number of households with children 12 years old or younger.
Note 2. The top is KHPS actual measured value, the bottom (in parentheses) is the recipient rate with estimated value.

Chart 4. Estimated results of child cost
KHPS 2004–2008： Households with children 18 years old or younger

Explained variable：

Food expense share

Equivalence scale

ＯＬＳ（Pool data）

Kobayashi （2009） Takezawa (2006)

t value

KHPS

Household
Budget Survey

0.813

0.951

Coefficientln(consumption expenditure) -0.058-16.43***

Number of children: 0-2 years -0.012

-4.53

***

Oyama (2004)

Household Budget Survey

JPSC

1.017

1.088

1.080

(6 years old and younger

1.124

years old and younger)

*

1.128

1.104

1.254

(7-13 years old)

1.126

(7-13 years old)

2.91

**

1.168

1.277

0.015

4.46

***

1.295

1.261

1.249

(14-22 years old)

1.260

(14-18 years old)

0.016

4.49

***

1.318

―

***

：3-6 years

0.001

0.05

：7-9 years

0.007

2.56

：10-12 years

0.009：13-15 years：16-18 years
Homeownership dummy

0.025

8.22

Employed wife dummy-0.003-1.02

Residence: counties and villages――：other cities

0.007

1.67

#

：metropolitan cities

0.009

1.98

*

2004 dummy――

2005 dummy

0.003

1.18

2006 dummy

0.008

2.96

**

2007 dummy

0.006

2.08

*

2008 dummy

0.008

2.62

**

Ｎ

4120

Ｒ２

0.142
**

***0.1% significance、

Nagase (2001)*#

1% significance、 ５％ significance、

10% significance

Note 1. The food expense value includes eating-out expense.
Note 2. Takeda (2006) is based on estimate 1 of Chart 3, Nagase (2001) is based on food share in Chart 2-1, and Oyama (2004) is based on random effect 2 of Appendix Chart 1.
Note 3. Oyama (2004) done by Rothbarth method. Explained variable is the expenditure amount for the husband plus the expenditure amount for the wife.

Chart 5. The ages of children targeted for child allowance payment in EU countries

until 16 years old

Netherlands (18 years old), Ireland (19 years old), Sweden (19 years old), Portugal (25 years old)

Until 17 years old

Finland

Until 18 years old

Norway, Denmark, Italy, Spain, Belgium (25 years old), Germany (27 years old), Australia (26 years
old), Greece (22 years old), Luxembourg (27 years old)

Until 20 years old

FranceNote 1. For a chi ld in an educati onal ins ti tution, pos s i bl e to extend to the a ge i n ( ).
Note 2. Crea ted i n reference to Os hio (1999) a nd Fukuda (2003)

Chart 6. The effect of the child allowance (KHPS actual measurement value) on Engel coefficient
KHPS 2004-2008：Households with children 12 years old or younger

Food expense share

Explained variable:

Model 1Model 2

ＯＬＳ (Pool Data)

Model 3

ＯＬＳ (Pool Data)

Coefficient t value

Fixed-Effect Model

Coefficient t value

In (consumption expenditure) -0.050-11.58***-0.052-12.05***In (consumption expenditure) -0.100-20.04-5.08***-0.011-4.32***Child allowance (actual measured value)-0.003

-1.23

4.900

***

0.008

3.98

***

Number of children

0.021

3.91

Homeownership dummy

0.028

7.65

***

Homeownership

0.031

4.34

Employed wife dummy

0.004

1.24

Employed wife

-0.002
0.004

0.010

Residence: metropolitan cities

0.007

1.13

Residence: other cities

0.007

1.25

Ｎ

: counties and villages

Random-Effect Model

Coefficient t valueChild allowance (actual value) -0.013
Number of children

Model 4

Coefficient t value***-0.070-19.61***-0.006

-2.65

**

***

0.011

6.11

***

***

0.032

9.37

***

-0.55

0.002

0.77

0.43

-0.003

2569

-1.23
2569

―

Group N

1003

1003

―

Within Ｒ

0.220

0.021

Between Ｒ ２

0.100

0.117

Overall Ｒ ２

0.110

0.124

Equivalence scale

0.970

0.918

２

2004 dummy―

2005 dummy

0.003

0.92

2006 dummy

0.009

2.60

2007 dummy

0.005

1.23

2008 dummy

0.007

**

#

1.78

0.003

0.8

0.007

2.11

0.003

0.7

0.004

*

1.03

Ｎ

2587

2569

F-testHouseman formulation test

Ｒ２

0.089

0.129

F(1002, 1560) = 2.89

chi2(6) = 89.37

0.809

prob > F = 0.0000

prob > chi = 0.0000

Note１）

20.771

Equivalence scale*****0.1% significance、

1% significance、*#

５％ significance、

10% significance

Note 1. Calculated based on the child allowance coefficient

Chart 7. Effect of child allowance (estimated value) on Engel coefficient
KHPS 2004-2008：Households with children 12 years old and younger

Food expense share

Explained variable:

Model 1Model 2Model 3Model 4

ＯＬＳ (Pool Data)

ＯＬＳ (Pool Data)

Fixed-Effect Model

Random-Effect Model

Coefficient t value

Coefficient t value

Coefficient t value

Coefficient t value-0.053-13.83***-0.055-14.29***In (consumption expenditure) -0.100-24.18***-0.073-23.03***

Child allowance (estimated value) -0.016

-6.44

***

-0.014-5.53***

Child allowance (estimated value)0.008

3.32

***

-0.004

-1.96

**

8.22

***

0.013

7.06

***

Number of children

0.016

3.88

***

0.014

7.61

***

Homeownership dummy

0.027

8.02

***

Homeownership

0.028

4.97

***

0.032

10.29

***

Employed wife dummy

0.007

2.62

**

Employed wife

-0.002

-0.52

0.004

1.68

#

Residence: metropolitan cities

0.010

1.98

*

Residence-0.001-0.13-0.005-2.00*: other cities

0.009

2.04

*

Ｎ

In (consumption expenditure)

Number of children

0.015: counties and villages―

2004 dummy――

2005 dummy

0.005

1.60

2006 dummy

0.010

3.34

**

―

―

0.004

1.39

0.008

2.68

**

2007 dummy

0.009

2.64

***

0.006

1.66

#

2008 dummy

0.015

4.08

***

0.010

2.76

**

3325

3325

Group N

1077

1077

Within Ｒ ２

0.223

0.211

Between Ｒ ２

0.008

0.117

Overall Ｒ ２

0.098

0.124

Equivalence scale

1.082

0.947

Ｎ

3349

3325

F-testHouseman formulation test

Ｒ２

0.097

0.136

F(1076, 2242) = 3.36

chi2(6) = 148.73

0.775

prob > F = 0.0000

prob > chi = 0.0000

note１）

20.739_Equivalence scale*****0.1% significance、

1% significance、*#

５％ significance、 10% significance

Note１. Calculated based on child allowance coefficientChart 8. The effect of child allowance (actual measured value) on educational expense share
KHPS 2004-2008：Households with children 12 years old or younger

Explained variable:Educational expense share
Model 1Model 2Model 3Model 4

ＯＬＳ (Pool Data)

ＯＬＳ (Pool Data)

Fixed-Effect Model

Random-Effect Model

Coefficient t value
In(consumption expenditure)-0.005-0.80Child allowance (actural measuring value)-0.005-1.68

Number of children

0.014

5.86

Coefficient t value

Coefficient t value-0.007-1.24

In (consumption expenditure)-0.041

-7.83

#

-0.003-0.96

Child allowance (actual measured value)
0.006

1.64

***

Coefficient t value***-0.019

-4.84

0.001

0.24

***

0.015

6.08

***

Number of children

0.004

0.48

0.013

5.12

***

Homeownership dummy

0.029

6.13

***

Homeownership

0.013

1.47

0.030

6.84

***

Employed wife dummy

0.008

1.89

#

Employed wife

0.006

1.28

0.010

1.69

#

0.017

2.12

Residence

0.004

0.36

-0.007-2.24*: other cities

0.007

1.07

Ｎ

: counties and villages―

Mother's educational background: high school―

Residence: metropolitan cities

*

2140

2140

Group N82

820

Within Ｒ ２

0.05

0.030

: technical college or junior college

0.018

3.59

***

Between Ｒ ２

0.001

0.060

: 4 years college or more

0.026

3.38

***

Overall Ｒ ２

0.009

0.060

2004 dummy――

2005 dummy-0.003-0.60

2006 dummy-0.010

-2.45

**
**

2007 dummy-0.011-2.67

2008 dummy-0.004

-1.05

-0.83

F-testHouseman formulation test

-2.97

*

F(819, 1314) = 3.09

chi2(6) = 54.12-0.015-3.48***

prob > F = 0.0000

prob > chi2 = 0.0000-0.010

-2.19

*

Ｎ

2150

1976

Ｒ２

0.027

0.086

**

***0.1% significance、-0.004-0.012*

1% significance、#

５％ significance、

10% significanceChart 9. The effect of the child allowance (estimated value) on educational expense share
KHPS 2004-200: Households with children 12 years old or younger

Explained variable:Educational expense share
Model 1Model 2Model 3Model 4

ＯＬＳ (Pool Data)

ＯＬＳ (Pool Data)

Fixed-Effect Model

Random-Effect Model

Coefficient t value

Coefficient t value

Coefficient t value

Coefficient t value-0.010-1.82#

In (consumption expenditure)-0.039-8.59-0.020

-5.60

***

***

-0.009-2.87**

Child allowance (estimated value)-0.002-0.56-0.008

-3.68

***

***

0.016

6.73

***

Number of children

0.003

0.39

0.014

5.95

***

Homeownership dummy

0.024

5.91

***

Homeownership

0.009

1.31

0.025

6.40

***

Employed wife dummy

0.010

2.67

**

Employed wife

0.007

1.88

0.008

2.70

**

0.014

1.89

#

Residence

0.007

0.88

-0.005

-1.85

#

0.009

1.38

ln(consumption expenditure)-0.006-1.17

Child allowance (estimated value)-0.011-3.61

Number of children

0.016

6.74

Residence: metropolitan cities: Other cities

2793

Ｎ

***

#

2793

: counties and villages―

Group N

897

897

Mother's educational background: high-school―

Within Ｒ ２

0.042

0.026

: technical school or junior collage

0.018

3.87

***

Between Ｒ ２

0.001

0.064

: 4 years college or more

0.026

3.74

**

Overall Ｒ ２

0.005

0.059

2004 dummy―

2005 dummy-0.001-0.04

2006 dummy-0.006-1.65

2007 dummy-0.0032008 dummy

0.001-0.001-0.38

F-testHouseman formulation test

-0.008-2.48**

F(896, 1890) = 3.41

chi2(6) = 62.22-0.83-0.008-2.16*

prob > F = 0.0000

prob > chi2 = 0.0000

0.23-0.005

-1.35

*

Ｎ

2808

2587

Ｒ２

0.03

0.083

**

***0.1% significance、―

1% significance、*#

５％ significance、

10% significanceAppendix Chart 1. Statistical description （KHPS 2004-2008）

Ｎ

Average

Child allowance (estimated value)

5325

0.31

0.56

0

4

General expenditure

4844

32.30

21.65

3.7

728.1

Food expense

5080

7.16

3.94

0

59.7

Educational expense

5021

3.02

6.59

0

135

Standard Deviation Minimum Value

Maximum Value

Number of children

5325

1.76

1.01

0

6

Number of children: 0–２ years

5325

0.30

0.56

0

3

：3-6 years

5325

0.35

0.59

0

3

：7-9 years

5325

0.25

0.47

0

2

：10-12 years

5325

0.23

0.46

0

2

：13-15 years

5325

0.21

0.45

0

2

：16-18 years

5325

0.20

0.44

0

2

Homeownership dummy

5280

0.67

0.47

0

1

Employed wife dummy

1

5068

0.58

0.49

0

Residence: counties and villages

5324

0.14

0.34

0

1

:other cities

5324

0.59

0.49

0

1

:metropolitan cities

5324

0.27

0.44

0

1

Wife's educational background: high-school

4689

0.55

0.50

0

1

：technical college and junior college

4689

0.30

0.46

0

1

：more than 4 years college

4689

0.16

0.36

0

1

2004 dummy

5325

0.28

0.41

0

1

2005 dummy

5325

0.22

0.45

0

1

2006 dummy

5325

0.19

0.41

0

1

2007 dummy

5325

0.20

0.39

0

1

2008 dummy

5325

0.15

0.35

0

1

Unit: 10,000 yen