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Fertility under Income Uncertainty: The Role of Education Subsidies

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  • Kanato Nakakuni

Abstract

Empirical studies suggest that income uncertainty depresses fertility, yet its policy im plications remain underexplored. This paper shows that income-tested education subsidies provide insurance against income risk for households with children, mitigating the negative effects of income uncertainty on fertility. I build and calibrate an incomplete-market general equilibrium lifecycle model with fertility and college enrollment choices, in which altruistic parents make asset transfers to support their children’s college education. Having more children increases the risk that parents may be unable to finance their children’s education after bad income shocks or, if they do finance it, must endure substantially lower lifetime consumption. This mechanism discourages fertility under income uncertainty and generates the observed negative relationship between income risk and fertility. Counterfactual exper iments show that income-tested college subsidies insure households against these risks by reducing education costs contingent on bad income shocks. The resulting fertility responses amplify the aggregate effects of the subsidy, including increases in educational attainment and intergenerational mobility.

Suggested Citation

  • Kanato Nakakuni, 2026. "Fertility under Income Uncertainty: The Role of Education Subsidies," CRC TR 224 Discussion Paper Series crctr224_2025_780, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_780
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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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