Untying the Knot: How Child Support and Alimony Affect Couples' Decisions and Welfare

Hanno Foerster

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In many countries, divorce law mandates post-marital maintenance payments (child support and alimony) to insure the lower earner in married couples against financial losses upon divorce. This paper studies how maintenance payments affect couples’ intertemporal decisions and welfare. I develop a dynamic model of family labor supply, home production, savings, and divorce and estimate it using Danish register and survey data. The model captures the policy tradeoff between providing insurance to the lower earner and enabling couples to specialize efficiently, on the one hand, and maintaining labor supply incentives for divorcees, on the other hand. I use the estimated model to study various counterfactual policy scenarios. I find that alimony comes with more substantial labor supply disincentives compared to child support payments and is less efficient in providing consumption insurance. The welfare maximizing policy, within the real-world policy space, involves increasing child support and reducing alimony payments. My results suggest that Pareto improvements beyond the welfare maximizing policy are feasible, highlighting the limitations of real-world child support and alimony policies.

Keywords: marriage and divorce; child support; alimony; household behavior; labor supply; limited commitment (search for similar items in EconPapers)
JEL-codes: D10 D91 J12 J18 J22 K36 (search for similar items in EconPapers)
Pages: 66
Date: 2019-08
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https://www.crctr224.de/research/discussion-papers/archive/dp115

Related works:
Working Paper: Untying the Knot: How Child Support and Alimony Affect Couples’ Decisions and Welfare (2023)
Working Paper: Untying the Knot: How Child Support and Alimony Affect Couples’ Decisions and Welfare (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_115v2

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