Raising America's future: search for optimal child-related transfers

The US differs from other OECD countries in terms of family policy size and composition. This study examines the welfare and macroeconomic effects of family policy reforms. I explore three policy instruments: child-related tax credits, child care subsidies, and child allowances. The children are merit good due to PAYG social security structure. I show that expanding family policy, similar to the American Rescue Plan, enhances welfare. I also characterize the optimal family policy for the US. It accounts for about 3% of GDP, three times larger than the existing policy, and primarily focused on child-care subsidies. The structure of family policy is vital for welfare evaluation, as similar expenditure levels can lead to contrasting welfare outcomes depending on policy composition. This study underscores the importance of carefully designed family policies, highlighting the need for ongoing research and policy innovation to maximize societal benefits and promote equitable economic growth.