Financial Incentives and Fertility
45 Pages Posted: 6 Aug 2009 Last revised: 16 Nov 2009
Date Written: April 30, 2009
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: Suggested Citation