Financial Incentives and Fertility

45 Pages Posted: 6 Aug 2009 Last revised: 16 Nov 2009

See all articles by Alma Cohen

Alma Cohen

Harvard Law School; Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Rajeev H. Dehejia

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); CESifo

Dmitri Romanov

Government of the State of Israel - Israel Central Bureau of Statistics

Date Written: April 30, 2009

Abstract

This paper investigates how fertility responds to changes in the price of a marginal child. We construct a large, individual-level panel data set of over 300,000 Israeli women during the period 1999–2005 with comprehensive information about their fertility histories, education, religious affiliation, ethnicity, and income. We exploit variation in Israel’s child subsidy program to identify changes in the price of a marginal child. We find a statistically significant and positive price effect on fertility: the marginal child subsidy increase the probability of pregnancy in a give year by 0.99 percentage point in our preferred specification. This positive effect is present for all religious and ethnic subgroups, including the Ultra-Orthodox Jewish population who’s social and religious norms discourage family planning. There is also a significant price effect on fertility among women who are close to the end of their lifetime fertility, suggesting that at least part of the effect that we estimate is due to a reduction in total fertility. As expected, the child subsidy has the strongest effect for households in the lower range of the income distribution, and it weakens with income. Finally, we investigate the effect that changes in the household income have on fertility choices, using the lag of the husband’s income as an instrument for the current household income. Consistent with Becker (1960) and Becker and Tomes (1976), we find that the income effect is small in magnitude and is negative at low income levels and positive at high income levels.

Keywords: fertility, child subsidies, child allowances

JEL Classification: D1, H31, I38, J13, K36

Suggested Citation

Cohen, Alma and Dehejia, Rajeev H. and Romanov, Dmitri, Financial Incentives and Fertility (April 30, 2009). CELS 2009 4th Annual Conference on Empirical Legal Studies Paper, Available at SSRN: https://ssrn.com/abstract=1443378 or http://dx.doi.org/10.2139/ssrn.1443378

Alma Cohen (Contact Author)

Harvard Law School ( email )

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Tel Aviv University - Eitan Berglas School of Economics ( email )

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Dmitri Romanov

Government of the State of Israel - Israel Central Bureau of Statistics ( email )

Israel

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