Do Financial Incentives Affect Fertility?

Review of Economic and Statistics, Vol. 95, No. 1, pp. 1-20 (2013) Harvard Law and Economics Discussion Paper No. 605

38 Pages Posted: 22 Dec 2007 Last revised: 25 May 2017

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

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Do Financial Incentives Affect Fertility? Review of Economic and Statistics, Vol. 95, No. 1, pp. 1-20 (2013), Harvard Law and Economics Discussion Paper No. 605 Number of pages: 38 Posted: 22 Dec 2007 Last Revised: 25 May 2017 You are currently viewing this paper Downloads 271 Do Financial Incentives Affect Fertility? NBER Working Paper No. w13700 Number of pages: 46 Posted: 31 Dec 2007 Last Revised: 29 May 2009 Downloads 34

Date Written: December 1, 2007

Abstract This paper investigates empirically whether financial incentives, and in particular governmental child subsidies, affect fertility. We use a comprehensive, nonpublic, individual-level panel dataset that includes fertility histories and detailed individual controls for all married Israeli women with two or more children from 1999-2005, a period with substantial variation in the level of governmental child subsidies but no changes in eligibility and coverage. We find a significant positive effect on fertility, with the mean level of child subsidies producing a 7.8 percent increase in fertility. The positive effect of child subsidies on fertility is concentrated in the bottom half of the income distribution. It is present across all religious groups, including the ultra-Orthodox Jewish population whose religious principles forbid birth control and family planning. Using a differences-in-differences specification, we find that a large, unanticipated reduction in child subsidies that occurred in 2003 had a substantial negative impact on fertility. Overall, our results support the view that fertility responds to financial incentives and indicate that the child subsidy policies used in many countries can have a significant influence on incremental fertility decisions.

Keywords: fertility, child subsidies, child allowances

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

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