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BabyBonus.pdf

BabyBonus.pdf

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Born on the
rst of July: An (un)natural experiment in birth timing
 Joshua S. Gans
a,
, Andrew Leigh
b
a
Melbourne Business School, University of Melbourne, Australia
b
Research School of Social Sciences, Australian National University, Australia
a r t i c l e i n f o a b s t r a c t
 Article history:
Received 6 June 2007Received in revised form 3 June 2008Accepted 21 July 2008Available online 24 July 2008
It is well understood that government policies can distort behavior. But what is less oftenrecognizedis that theanticipated introduction ofa policycan introduceits own distortions. Westudyonesuch
introductioneffect,
usingevidencefromauniquepolicychangeinAustralia.In2004, the Australian government announced that children born on or after July 1, 2004 wouldreceive a $3000
Baby Bonus.
Although the policy was onlyannounced sevenweeks before itsintroduction, parents appear to have behaved strategically in order to receive the bene
t, withthe number of births dipping sharply before the policy commenced. On July 1, 2004, moreAustralian children were born than on any other single date in the past thirty years. Weestimatethatover 1000 births were
moved
so astoensurethat their parentswere eligible fortheBabyBonus,withaboutonequarterbeingmovedbymorethanoneweek.Mostoftheeffectwas due to changes in the timing of induction and cesarean section procedures. We
ndevidence to suggest that babies who were shifted into the eligibility period were more likely tobe of high birth weight. Two years later, on July 1, 2006, the Baby Bonus was increased, and we
nd that this again caused births to be moved from June to July. These birth timing eventsrepresent an opportunity for health researchers to study the impact of planned birthdays andhospital management issues.© 2008 Elsevier B.V. All rights reserved.
 JEL classi
 fi
cation:
H31 J13
Keywords:
Introduction effectTiming of birthsPolicy distortion
TIM LESTER: Minister, with the bene
 fi
t of hindsight, would it have been better to have announced and introduced this policy onthe same day?KAY PATTERSON: This policy is a bonus to families.TIM LESTER: That doesn't answer my question, though, with respect, Minister. Would it have been better to have announced andintroduced this policy at the same time?KAY PATTERSON: I believe this is a fantastic policy for mothers, they're going to get $3000
 Journal of Public Economics 93 (2009) 246
263
Inpart, this paper uses con
dentialised unit record
le data fromthe Household, Income and Labour Dynamics in Australia (HILDA) survey. The HILDA Projectwas initiated and is funded by the Australian Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) and is managed by theMelbourne Institute of Applied Economic and Social Research (MIAESR). The
ndings and views reported in this paper, however, are those of the authors andshould not be attributed to either FaHCSIA or the MIAESR. We are grateful to Heather Booth, Bruce Chapman, Paul Frijters, Joe Hirschberg, Susanne Schmidt, ScottStern, Justin Wolfers, seminar participants at Columbia University and two anonymous referees for valuable comments on earlier drafts. This paper uses morerecent births data than a previous version, though this has only a slight impact on the results.
Corresponding author.
E-mail addresses:
URL's:
see front matter © 2008 Elsevier B.V. All rights reserved.doi:10.1016/j.jpubeco.2008.07.004
Contents lists available atScienceDirect
 Journal of Public Economics
 journal homepage: www.elsevier.com/locate/econbase
 
TIM LESTER: Minister, that still doesn't answer my question with respect. Would it have been better to have announced andintroduced this policy at the same time?KAY PATTERSON: Well if I thoughtthat mothers wouldput their babies at risk, but I don't believe mothers would put themat risk.
1
1. Introduction
Economistshave longbeenconcernedthatseeminglysubtleissuesofpolicyannouncementsandthetimingof policyshifts canhavedramatic short-term effects on individual behavior. Considera situationwhere a government announces a new tax bene
tora subsidythat willbe introducedat some laterdate. It canbeexpectedthat
tothe extent that they havesome discretionas tothetiming of their decisions
individuals will shift their actions around the policy introduction date to take advantage of a bene
t oravoid a detriment. Just as the existence of government policies can distort behavior, so too policy
changes
can further distortindividuals' decisions. Such an effect might be termed an
introduction effect 
.Frequently,theannouncementthatanewtaxorsubsidywilltakeeffectuponacertaindateleadstonewsreportsofindividualsor
rmsrearrangingtheiraffairssoastotakeadvantageofthepolicychange.However,itisrareto
ndanopportunityinwhichtheeffect of such policy changes can be quantitatively estimated.
2
In this paper, we identify a policy change that created the potential for an introduction effect. On May 11, 2004, the Australiangovernment announced that it would give a $3000 Maternity Payment, commonly referred to as a
Baby Bonus
to each family of anewbornchild.
3
Forourpurposes,theimportantfeatureoftheBabyBonuspolicywasthatitwastoonlyapplyforbabiesbornonorafter July 1, 2004. Thus, a household with a child born at 11:59 pm on June 30, 2004, would receive no payment while one with achild born at 12:01 am on July 1, 2004, and thereafter would receive $3000.
4
This creates the potential for an introduction effectespecially given the lag between the policy announcement and the introduction date.The seven week lag between the policy announcement and its introduction would not have an impact on the number of pregnancies as those affected by the introductionwere already in the process; the third trimester, in fact.
5
However, it could havean impact on either (i) discretionary and planned birth timing decisions (such as inductions and elective cesarians) and/or (ii) thereporting of birthdays. In each case, the impact on reported birth timing would be jointly determined by the parents and doctorinvolved.
6
We obtained daily data on all recorded births in Australia from 1975 to 2004. Even without any statistical analysis, the effectappears dramatic. On June 30, 2004 (a Wednesday), 500 babies were registered as having been born, a birthrate at the 11thpercentile of the births distribution over the entire period 1975
2004 (and the 1st percentile of the births distribution onweekdays).
7
On July 1, 2004, 1005 babies were born. This was the
highest number of births
recorded throughout the 10,958-dayperiod 1975
2004. The
fth-highest number of births on a single day was July 2, 2004 with 928.Witha
exiblefunctionalform,allowingforseparateday-of-year,day-of-weekandyeareffects,we
ndthattheintroductionof theBabyBonuswasassociatedwithasubstantialincrease inthe birthrate. Ourresultsarehighlystatisticallysigni
cant,as wellasbeingeconomicallysigni
cant.Overthewindowcovering28daysbeforeand28daysafterthepolicywasintroduced,weestimatethat over 1000 births were moved into the eligibility range. Data from induction and cesarean section procedures indicate thatthese accounted for most of the shift. Analyzing a subsample of birth records, we
nd that babies born in early-July weresigni
cantly heavier than those born in late-June, which would be consistent with parents delaying births to obtain the payment.All of this provides an indication that shifting was, in fact, real and not a result of reporting issues or fraud.As well as providing an experiment that identi
es an introduction effect, our result here is also a contribution to ourunderstanding of the short-run drivers of the timing of births.Chandra et al. (2004)demonstrated that birth numbers fall onweekends as compared with weekdays, and that this effect has grown over time. Theyalso found that less risky births were morelikelytobemoved.AverysimilartrendawayfromweekendbirthshasalsooccurredinAustralia(GansandLeigh,2007).Indeed,aswe discuss below, it is important that we take account of day-of-week effects when estimating the true magnitude of theintroduction effect.Inrelationtotheimpactof governmentpolicies,Dickert-ConlinandChandra(1999)demonstratedthattaxincentivesintheUScaused births to be shifted from the
rst week of January each year to the last week of December. They estimated that increasingthe tax bene
t of having a child by $500 raised the probability of an end of December birth by 26.9%.
8
Our paper offers a distinctinsight into birth timingand incentives. First, the government policycreatedan incentive to
delay
the birth as opposed to bringingitforward.Asbabiesareoftenbornprematurely,thereisintrinsicallylesscontrolinthisdecisionthanadecisionforanearlierbirth.
1
From the 7:30 Report (ABC Television, July 1, 2004); Kay Patterson was the Minister for Health in the Australian Government.
2
nd that changes in the estate tax rate inthe US, Australia, and Sweden had an impact on the number of reported deaths.
3
All
gures are in Australian dollars. In 2004, A$1=US$0.75 (approx).
4
Precisely 12:00 am was apparently a
grey
area (
Sunday Telegraph
, June 27, 2004, p.5).
5
Including the third child of the
rst author; eventually born on July 25, 2004.
6
In the case of home births, it would be the mid-wife. However, we do not separately identify these in our data.
7
There were some births reported close to midnight: ABC Radio (July 1, 2004) reported a birth at 11:53pm.
8
Milligan (2005)studied the introduction of a
baby bonus
(or Allowance for Newborn Children) in Quebec, Canada. However, in that case, the policycommenced on the day of its announcement, so there was no potential for an introduction effect. In 2006, the German and Singaporean governments bothannounced that they planned to offer payments to new parents, potentially creating the opportunity for further investigation of introduction effects.247
 J.S. Gans, A. Leigh / Journal of Public Economics 93 (2009) 246 
 263
 
Second, the US tax incentive exists in every year, allowing hospitals to allocate additional resources to take account of it. Theintroduction of the Baby Bonus in Australia had a
one-off effect 
, and so likely created unplanned resource utilization problems. Inthis situation, one would expect hospitals and doctors to have been more constrained in their ability to respond to parentalrequests to adjust the timing of the birth so that they were eligible for the Baby Bonus. Our observed impacts are, therefore,informative as to the degree of power that patients have over the timing of births.
9
While the Australian Baby Bonus represents a clean experiment in analyzing the introduction effect, there is some questionwhether what mattered was an increase in real incentives provided by the Baby Bonus or a reaction to a clearer and moretransparent setof incentives.Aswe describebelow, the Baby Bonusreplaced anearlierchildbirthincentive.Incontrast tothenewBaby Bonus, however, this earlier bene
t was income-related and so varied considerably depending on individual circumstance.Also, it was a bene
t realized with some considerable delay whereas the Baby Bonus cash payment was immediate.
10
Given itsrelative complexity, it is unclear whether the earlier policy was recognized as an incentive at all.
11
The paper proceeds as follows. In the next section, we describe in more detail the Australian Baby Bonus and its predecessor.Section3estimatesthetotalnumberofbirthsthatweremoved.Section4decomposestheeffectacrossbirthprocedures.Section5analyzes the characteristics of those babies that were born, and their parents. Section 6 presents the results of a subsequentincrease in the Baby Bonus, which occurred in 2006. The
nal section concludes.
2. The Australian Baby Bonus
From July 1, 2004, the Baby Bonus operated very simply. If a family gave birth to a child after this date, they automaticallyreceived a cash payment of $3000. The payment was untaxed, and was given to all parents regardless of income. For the medianhousehold, this amount was worth 5.4% of annual disposable income (equivalent to 2.8 weeks' post-tax income).
12
The paymentwas per baby and so for the multiple births the payment was $6000 for twins or $9000 for triplets.The policy was announced as part of the 2004
2005 Budget. It was not anticipated and can, therefore, be taken as essentiallyunknownpriortoMay11,2004.
13
Thestatedgoalofthepolicywas
toprovidefurtherhelpatthecrucialperiodaroundthebirthof a child
(AustralianTreasury, 2004, 33) (though with Australian voters due to go to the polls in late-2004, purely political motivescannot be ruled out; particularly as the Opposition Leader had proposed a similar policy in March 2004). There was considerablepublicity about the introduction of the policy when it was announced, and further coverage in June 2004.
14
This included a mediadiscussion as to whether the policy might encourage teenage pregnancy and suggestions that teenagers might in future beexcluded from receiving the bonus.
15
TheBabyBonuswedescribedherereplacedapreviouspolicy,whichoperatedasarefundabletaxoffset.
16
Thatpolicyworkedasfollows: for each baby born between July 1, 2001 and June 30, 2004, the primary carer of the child (that is, the parent staying athome)waseligibletoclaimforabonus.
17
Thebonusdependedontheincometheprimarycarerearnedinthetaxyear(inAustraliafromJulyto June) that the child was born. If the primarycarer's incomewas $25,000 orless, the taxpayer would receive $500/yr.
18
If the income exceeded this amount, then the taxpayer would only receive a payment if their income fell. In this case, the bene
tcould potentially be quite large. The size of the payment depended on the taxpayer's income level prior to having a baby (
Inc 
0
),their average tax rate in that year (
τ 
0
), and their income level inyear
(where
5). The yearly bonus inyear
was then calculatedas follows:
19
Yearly Bonus
¼
1
Inc 
Inc 
0
min
τ 
0
Inc 
0
;
D
12
;
500
ð Þ
5
9
AsChandra et al. (2004)noted, it is unclear whether the weekend/public holiday decline is driven by doctor/hospital or patient preferences. This is not thecase for changes in timing based on the Baby Bonus.
10
The
rst author received his $3000 payment via electronic transfer in 5 weeks.
11
Again the
rst author's experience is instructive here. Prior to the introduction of the new Baby Bonus, his household was blissfully unaware of any
nancialbene
t to having a child.
12
Authors' calculations, based on the Household, Income and Labour Dynamics in Australia survey (HILDA).
13
A media search in the weeks prior to the budget reveals that the government made it known to some journalists in early May that the Baby Bonus wouldprobably be revamped in the budget. However, details were not provided at the time, so the changes remained speculative.
14
For example, much coverage was given to the Treasurer's suggestion to the media on May 11, 2004 that Australian parents should have
one for mom, one fordad, and one for the country.
. A search of the
Factiva
database for the terms
Baby Bonus
and
Maternity Payment
returns 411 articles published in Australiannewspapers during May and June 2004.
15
On the furor over teens, see for exampleArndt (2004),Grattan and Nguyen (2004). On 1 January 2007, the Australian government changed the rules so that parents aged 17 years or under would receive the Baby Bonus in 13 fortnightly installments, unless special circumstances existed to warrant the payment of alump sum. On 15 May 2008, the government announced that all families would receive the Baby Bonus in 13 fortnightly installments (commencing 1 July 2008),and that eligibility would be restricted to families with adjusted taxable income equivalent to $150,000 or less a year (commencing 1 January 2009).
16
The new Baby Bonus also replaced the Maternity Allowance, a means-tested payment to those families receiving Family Tax Bene
t A. At the time of thechange, the Maternity Allowance was worth $842.64 per child for eligible families.
17
Both the old Baby Bonus and the new Baby Bonus were also available to adoptive parents.
18
The
rst year amount would be reduced to take into account the birth date of the child.
19
There were adjustments to this based on part-years for the beginning and end of the
rst 5 years. The amount was payable following the lodgment of anincome tax return with a minimum time to refund of 3 to 15 months depending upon when in the year the child was born.248
J.S. Gans, A. Leigh / Journal of Public Economics 93 (2009) 246 
 263

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