Financial Incentives and Fertility

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 13.07.2010, 12:15 - 13:30


Presentation by 

Rajeev Dehejia (New York University)


This paper investigates how fertility responds to changes in the price of a marginal child. We construct a large, individual-level panel data set of over 300,000 Israeli women during the period 1999Ė2005 with comprehensive information about their fertility histories, education, religious affiliation, ethnicity, and income. We exploit variation in Israelís child subsidy program to identify changes in the price of a marginal child. We find a statistically significant and positive price effect on fertility: the marginal child subsidy increases the probability of pregnancy by 0.99 percentage points in our preferred specification. This positive effect is present in all religious and ethnic subgroups, including those 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 effect that we estimate is due to a reduction in total fertility. As expected, the child subsidy effect is strongest for households in the lower range of the income distribution, and weakens with income. Finally, we investigate how changes in household income affect fertility choices. Consistent with 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 income levels. Our results are robust to including mother fixedeffects and instrumenting for household income with the lag of the husbandís income.

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