Family planning and fertility inequality: Evidence from the abolition of China's one‐child policy

This study takes China's one‐child policy (OCP)—a widely known policy intervention for family planning—as an example to illustrate that an income‐based penalty scheme for above‐quota births may cause fertility inequality. A couple can legally have only one child under the OCP, and those who exceed the quota are subject to fines. To ensure that this penalty scheme does not biasedly affect only low‐income people who are relatively more sensitive to fines of a certain amount, it was designed to be income‐based, which makes the perceived cost of the rich equal to that of the poor. However, we find that due to the limited liability nature of the financial penalty, it unintentionally created fertility inequality that favors the poor. Relying on city‐year‐level panel data, we find that this mechanism partly explains the lower birth rates in rich cities in the OCP era; the gap narrowed rapidly after the OCP abolition.