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CHILD SUBSIDIES AND THE CROSS-SECTIONAL FERTILITY PATTERN

Published online by Cambridge University Press:  26 February 2018

Laurie S. M. Reijnders
Laurie S. M. Reijnders*
Affiliation:
University of Groningen
*
Address correspondence to: Laurie Sarah May Reijnders, Faculty of Economics and Business, University of Groningen, Nettelbosje 2, 9747 AE Groningen, The Netherlands; e-mail: [email protected].
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Abstract

This paper studies the effect of different types of child subsidies on the economic allocation and the cross-sectional fertility pattern. I construct a rich but tractable general equilibrium model with overlapping generations of heterogeneous individuals, two sectors of production and a government. I derive analytically how fertility choices are affected by changes in household resources and child subsidies and show the numerical results of two policy experiments. A subsidy on childcare favors the birth rates of educated, high-wage individuals. Parents work more so that the subsidy program is partly financed by a rise in labor earnings. In contrast, a lump-sum child allowance stimulates fertility of uneducated, low-wage parents the most. This policy has a larger effect on the average birth rate, but as parents perform most of the care themselves it comes at the expense of a lower supply of labor and a greater tax burden.

Keywords

Family PolicyFertilityChildcare Subsidies
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Issue 5 , July 2018 , pp. 1207 - 1237
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

For valuable comments and suggestions, I thank the Associate Editor and two anonymous referees, as well as Hippolyte d'Albis, David de la Croix, Paula Gobbi, and the participants of the workshop on “Fertility decisions and endogenous mortality in macroeconomics” (February 2014, Paris) and the Demographic Economics Conference (May 2014, Iowa City).

*Financial support from The Netherlands Organisation for Scientific Research (NWO) is gratefully acknowledged (grant number 453-14-012).

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