Parental leave benefit and differential fertility responses: evidence from a German reform

This paper examines the causal effects of a major change in the German parental leave benefit scheme on fertility. I use the unanticipated reform of 2007 to assess how a move from a means tested to an earnings-related benefit affects higher-order births. By using data from the Mikrozensus, I find that the reform significantly affected the timing of higher-order births in the first 5 years after a last birth. Overall, mothers “just” eligible for the new benefit for the current birth initially reduce subsequent childbearing and extend birth spacing, compared to mothers “just” ineligible. However, by the end of the third year, mothers start to compensate for the earlier losses. The negative effects are largely driven by the low-income mothers, who are now worse-off and do not display any catch-up effects. The differential fertility responses along the income distribution are in line with the heterogeneous structure of the economic incentives.