Working Paper: NBER ID: w13700
Authors: 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.
Keywords: fertility; financial incentives; child subsidies; Israel; demographics
JEL Codes: D1; H31; I38; J13; K36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income effect on fertility at low income levels (J13) | Small negative impact on fertility (J13) |
| Income effect on fertility at higher income levels (J13) | Positive impact on fertility (J13) |
| Reduction of 150 NIS in the monthly subsidy for a marginal child (H23) | Decrease in the probability of having an incremental child (D15) |
| Mean level of marginal child subsidy (H29) | Increase in fertility (J13) |