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Fertility and Family Leave Policies in Germany: Optimal Policy Design in a Dynamic FrameworK

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  • Hanna Wang

Abstract

I develop and estimate a life-cycle discrete-choice model of fertility and female labor supply to study the optimal design of a range of child-related policies. First, I examine two German reforms that introduced wage-contingent parental leave payments and expanded access to low-cost public childcare. I find that both reforms raised completed fertility, with the parental leave reform having a particularly strong impact on highly educated women. Second, I solve for a budget-neutral optimal policy portfolio that maximizes either aggregate welfare or fertility, while ensuring that welfare and fertility do not decline for any education group. I consider four prominent child subsidies as well as the degree of tax jointness. My results show that optimal policy has the potential to increase welfare by 0.5% or fertility by 5.7%. While the solutions are qualitatively similar, they prioritize different policy instruments depending on the specific objective being targeted.

Suggested Citation

  • Hanna Wang, 2026. "Fertility and Family Leave Policies in Germany: Optimal Policy Design in a Dynamic FrameworK," CESifo Working Paper Series 12416, CESifo.
    • Handle: RePEc:ces:ceswps:_12416
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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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