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Do Financial Incentives Affect Fertility?

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  • Alma Cohen
  • Rajeev Dehejia
  • Dmitri Romanov

Abstract

This paper investigates how fertility responds to changes in the price of a marginal child and in household income. We construct a large, individual-level panel data set of married Israeli women during the period 1999-2005 that contains fertility histories and detailed controls. We exploit variation in Israel's child subsidy program to identify changes in the price of a marginal child (using changes in the subsidy for a marginal child) and to instrument for household income (using changes in the subsidy for infra-marginal children). We find a significant and positive price effect on fertility: the mean level of marginal child subsidy produces a 7.8 percent increase in fertility. There is a positive effect within all religious and ethnic subgroups, including the ultra-Orthodox Jewish population, whose social and religious norms discourage family planning. There is also a significant price effect on fertility among women who are close to the end of their lifetime fertility, suggesting that at least part of the price effect is due to a reduction in total fertility. As expected, the child subsidy has no effect in the upper range of the income distribution. Finally, consistent with the predictions of Becker (1960) and Becker and Tomes (1976), we find that the income effect is small in magnitude and is negative at low income levels and positive at high levels.

Suggested Citation

  • Alma Cohen & Rajeev Dehejia & Dmitri Romanov, 2007. "Do Financial Incentives Affect Fertility?," NBER Working Papers 13700, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13700
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    Cited by:

    1. Dettling, Lisa J. & Kearney, Melissa S., 2014. "House prices and birth rates: The impact of the real estate market on the decision to have a baby," Journal of Public Economics, Elsevier, vol. 110(C), pages 82-100.
    2. Gordey Yastrebov, 2016. "Intergenerational Social Mobility in Soviet and Post-Soviet Russia," HSE Working papers WP BRP 69/SOC/2016, National Research University Higher School of Economics.
    3. Arindam Nandi & Ramanan Laxminarayan, 2016. "The unintended effects of cash transfers on fertility: evidence from the Safe Motherhood Scheme in India," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(2), pages 457-491, April.
    4. Michael F. Lovenheim & Kevin J. Mumford, 2010. "Do Family Wealth Shocks Affect Fertility Choices? Evidence from the Housing Market Boom and Bust," Purdue University Economics Working Papers 1228, Purdue University, Department of Economics.
    5. Bloom, David E. & Luca, Dara Lee, 2016. "The Global Demography of Aging: Facts, Explanations, Future," IZA Discussion Papers 10163, Institute for the Study of Labor (IZA).
    6. Gonzalez, Libertad, 2011. "The Effects of a Universal Child Benefit," IZA Discussion Papers 5994, Institute for the Study of Labor (IZA).
    7. Laroque, Guy & Salanié, Bernard, 2005. "Does Fertility Respond to Financial Incentives?," CEPR Discussion Papers 5007, C.E.P.R. Discussion Papers.
    8. Evelyn Korn & Matthias Wrede, 2012. "The effect of long term subsidies on female labor supply and fertility," MAGKS Papers on Economics 201243, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Chen, Hung-Ju, 2015. "Child allowances, educational subsidies and occupational choice," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 327-342.
    10. Arntz, Melanie & Gathmann, Christina, 2014. "Permanent Changes in the Wage Structure and the East German Fertility Crisis," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100464, Verein für Socialpolitik / German Economic Association.
    11. Sila, Urban, 2009. "Can family-support policies help explain differences in working hours across countries?," LSE Research Online Documents on Economics 28684, London School of Economics and Political Science, LSE Library.
    12. Eva Mörk & Anna Sjögren & Helena Svaleryd, 2013. "Childcare costs and the demand for children—evidence from a nationwide reform," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(1), pages 33-65, January.
    13. Svetlana Biryukova & Oxana Sinyavskaya & Irina Nurimanova, 2016. "Estimating effects of 2007 family policy changes on probability of second and subsequent births in Russia," HSE Working papers WP BRP 68/SOC/2016, National Research University Higher School of Economics.
    14. Tomer Blumkin & Yoram Margalioth & Efraim Sadka, 2010. "Taxing Children: The Re-distributive Role of Child Benefits - Revisited," CESifo Working Paper Series 2970, CESifo Group Munich.
    15. Daniel Chen, 2011. "Can countries reverse fertility decline? Evidence from France’s marriage and baby bonuses, 1929–1981," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 253-272, June.
    16. Kristiina Huttunen & Jenni Kellokumpu, 2016. "The Effect of Job Displacement on Couples' Fertility Decisions," Journal of Labor Economics, University of Chicago Press, vol. 34(2), pages 403-442.
    17. repec:eee:hapoch:v1_3 is not listed on IDEAS
    18. Avraham Ebenstein & Moshe Hazan & Avi Simhon, 2016. "Changing the Cost of Children and Fertility: Evidence from the Israeli Kibbutz," Economic Journal, Royal Economic Society, vol. 126(597), pages 2038-2063, November.
    19. Jose Maria Cabrera, 2011. "Fecundidad e Ingresos en Uruguay," Documentos de Trabajo/Working Papers 1110, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
    20. Chen, Hung-Ju, 2013. "Child Allowances, Educational Subsidies and Economic Growth," MPRA Paper 51279, University Library of Munich, Germany.
    21. Evelyn Korn & Matthias Wrede, 2012. "The Effect of Long-Term-Care Subsidies on Female Labor Supply and Fertility," CESifo Working Paper Series 3931, CESifo Group Munich.
    22. Nakajima, Ryo & Tanaka, Ryuichi, 2014. "Estimating the effects of pronatal policies on residential choice and fertility," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 179-200.
    23. Arindam Nandi & Ramanan Laxminarayan, 2016. "The unintended effects of cash transfers on fertility: evidence from the Safe Motherhood Scheme in India," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(2), pages 457-491, April.
    24. Sinclair, Sarah & Boymal, Jonathan & de Silva, Ashton J, 2012. "Is the fertility response to the Australian baby bonus heterogeneous across maternal age? Evidence from Victoria," MPRA Paper 42725, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • K36 - Law and Economics - - Other Substantive Areas of Law - - - Family and Personal Law

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