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Do Financial Incentives Affect Fertility?

  • Alma Cohen
  • Rajeev Dehejia
  • Dmitri Romanov

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.

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File URL: http://www.nber.org/papers/w13700.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13700.

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Date of creation: Dec 2007
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Publication status: published as Review of Economics and Statistics, Volume 95 (Number 1), March 2013, pp. 1-20.
Handle: RePEc:nbr:nberwo:13700
Note: CH LE LS PE
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  1. Charles F. Manski & Joram Mayshar, 2003. "Private Incentives and Social Interactions: Fertility Puzzles in Israel," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 181-211, 03.
  2. Black, Sandra & Devereux, Paul J. & Salvanes, Kjell G, 2007. "Small Family, Smart Family? Family Size and the IQ Scores of Young Men," CEPR Discussion Papers 6443, C.E.P.R. Discussion Papers.
  3. Melissa Schettini Kearney, 2004. "Is There an Effect of Incremental Welfare Benefits on Fertility Behavior?: A Look at the Family Cap," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
  4. Guy Laroque & Bernard Salanié, 2008. "Does Fertility Respond to Financial Incentives?," CESifo Working Paper Series 2339, CESifo Group Munich.
  5. Cigno, Alessandro, 1986. "Fertility and the Tax-Benefit System: A Reconsideration of the Theory of Family Taxation," Economic Journal, Royal Economic Society, vol. 96(384), pages 1035-51, December.
  6. George J. Borjas & Richard B. Freeman, 1992. "Immigration and the Workforce: Economic Consequences for the United States and Source Areas," NBER Books, National Bureau of Economic Research, Inc, number borj92-1, December.
  7. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
  8. Joshua Angrist & Victor Lavy & Analia Schlosser, 2010. "Multiple Experiments for the Causal Link between the Quantity and Quality of Children," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 773-824, October.
  9. Leslie Whittington, 1992. "Taxes and the Family: The impact of the tax exemption for dependents on marital fertility," Demography, Springer, vol. 29(2), pages 215-226, May.
  10. Gregory Acs, 1996. "The Impact of Welfare on Young Mothers' Subsequent Childbearing Decisions," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 898-915.
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