Excerpt:
Reasons Behind Income Shares Model’s Overstatement of Child Costs
There are several reasons why PSI’s methodology—using either version of income shares—
leads to an overstatement of child costs: (1) non-recognition of a budget constraint, (2) the choice
of adult goods share of consumption as a target definition, and (3) the use of intact families to
estimate child costs. First, the income equivalence approach ignores the budget constraint faced
by families who have children. In “real life,” families do not spend on children based on some
notion of extra “phantom” income for economic well-being equivalence, but must make spending
decisions based on the same level of income as prior to having the additional child. Furthermore,
families assume their economic standard of living will decline as a result of new child costs. The
income constraint seen in real life leads to much lower actual child costs than those that are
estimated by income equivalence models of child costs—as in income shares.
The entire Georgia Recommendation is found in this PDF:
West Michigan DADS 