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Targeting fertility and female participation through the income tax

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Abstract

We evaluate the effect of a 2003 reform in the Spanish income tax on fertility and the employment of mothers with small children. The reform introduced a tax credit for working mothers with children under the age of three, while also increasing child deductions for all households with children. Theoretically, given the interplay of these two components, the expected effect of the reform is ambiguous on both outcomes. We find that the combined reforms significantly increased both fertility (by almost five percent) and the employment rate of mothers with children under three (by two percent). These effects were more pronounced among less-educated women. In addition, to disentangle the impact of the two reform components, we use an earlier reform that increased child deductions in 1999. We find that the child deductions affect mothers’ employment negatively, which implies that the 2003 tax credit would have increased employment even more (up to five percent) in the absence of the change in child deductions.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1113.

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Date of creation: Oct 2008
Date of revision: May 2009
Handle: RePEc:upf:upfgen:1113

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Web page: http://www.econ.upf.edu/

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Keywords: Female labor force participation; fertility; family policy; tax credit; child subsidy;

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Cited by:
  1. Nollenberger, Natalia & Rodríguez-Planas, Núria, 2011. "Child Care, Maternal Employment and Persistence: A Natural Experiment from Spain," IZA Discussion Papers 5888, Institute for the Study of Labor (IZA).
  2. Mizuochi, Masaaki, 2012. "The Effect of Work-family Balance Policy on Childbirth and Women's Work," Discussion Paper Series 575, Institute of Economic Research, Hitotsubashi University.
  3. Haan, Peter & Wrohlich, Katharina, 2009. "Can Child Care Policy Encourage Employment and Fertility? Evidence from a Structural Model," IZA Discussion Papers 4503, Institute for the Study of Labor (IZA).
  4. Nezih Guner & Ezgi Kaya & Virginia Sánchez-Marcos, 2014. "Gender gaps in Spain: policies and outcomes over the last three decades," SERIEs, Spanish Economic Association, vol. 5(1), pages 61-103, March.
  5. Pau Baizan, 2009. "Regional child care availability and fertility decisions in Spain," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 21(27), pages 803-842, December.
  6. Ryo Nakajima & Ryuichi Tanaka, 2012. "Estimating the Effects of Pronatal Policies on Residential Choice and Fertility," GRIPS Discussion Papers 12-06, National Graduate Institute for Policy Studies.
  7. Cygan-Rehm, Kamila, 2013. "Earnings-Dependent Parental Leave Benefit and Fertility: Evidence from Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80021, Verein für Socialpolitik / German Economic Association.
  8. Fernández-Kranz, Daniel & Rodríguez-Planas, Núria, 2013. "Can Parents' Right to Work Part-Time Hurt Childbearing-Aged Women? A Natural Experiment with Administrative Data," IZA Discussion Papers 7509, Institute for the Study of Labor (IZA).

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