Do Financial Incentives Affect Fertility?

46 Pages Posted: 31 Dec 2007 Last revised: 29 May 2009

See all articles by Alma Cohen

Alma Cohen

Tel Aviv University - Eitan Berglas School of Economics; Harvard Law School; 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

Multiple version iconThere are 2 versions of this paper

Date Written: December 2007

Abstract

This paper investigates how fertility responds to changes in the price of a marginal child and in household income. We construct a large, individual-level panel data set of married Israeli women during the period 1999-2005 that contains fertility histories and detailed controls. We exploit variation in Israel's child subsidy program to identify changes in the price of a marginal child (using changes in the subsidy for a marginal child) and to instrument for household income (using changes in the subsidy for infra-marginal children). We find a significant and positive price effect on fertility: the mean level of marginal child subsidy produces a 7.8 percent increase in fertility. There is a positive effect within all religious and ethnic subgroups, including the ultra-Orthodox Jewish population, whose 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 price effect is due to a reduction in total fertility. As expected, the child subsidy has no effect in the upper range of the income distribution. Finally, consistent with the predictions of 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 levels.

Suggested Citation

Cohen, Alma and Dehejia, Rajeev H. and Romanov, Dmitri, Do Financial Incentives Affect Fertility? (December 2007). NBER Working Paper No. w13700. Available at SSRN: https://ssrn.com/abstract=1079279

Alma Cohen (Contact Author)

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

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Rajeev H. Dehejia

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CESifo ( email )

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Dmitri Romanov

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

Israel

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