ECOS3027: Economics of the Family - Lectures Notes 9

Fertility III

Marian Vidal-Fernandez

Semester 2 2017

Background readings
** – required reading (as on UoS outline); * – key background readings
• **Milligan, K. (2005): Subsidizing the Stork: New Evidence on Tax Incentives and Fer-
tility, Review of Economics and Statistics, 87, 3, 539-555
• *Lovenheim, Michael F., and Kevin J. Mumford. “Do family wealth shocks affect fertility
choices? Evidence from the housing market.” Review of Economics and Statistics 95, no.
2 (2013): 464-475.
• Sinclair, Boymal and de Silva, 2014 “A Re-Appraisal of the Fertility Response to the
Australian Baby Bonus”, The Economic Record, 88, pp.78-87
• Chandra, Amitabh and Stacy Dickert-Conlin. 1999. “Taxes & the Timing of Births.”
Journal of Political Economy, 107(1)
• Cohen, Alma, Rajeev Dehejia, and Dmitri Romanov. “Financial incentives and fertility.”
Review of Economics and Statistics 95.1 (2013): 1-20.
• *Gans, Joshua S., and Andrew Leigh. “Born on the first of July: An (un) natural
experiment in birth timing.” Journal of Public Economics 93, no. 1 (2009): 246-263.
• Lindo, Jason M. “Are children really inferior goods? Evidence from displacement-driven
income shocks.” Journal of Human Resources 45, no. 2 (2010): 301-327.
• Black, Dan A., Natalia Kolesnikova, Seth G. Sanders, and Lowell J. Taylor. ”Are Children
”Normal”?.” The Review of Economics and Statistics 95, no. 1 (2013): 21-33.

1 Household resources and fertility

• We have noted the cross-section and time series negative correlation between income and
fertility: but, this reflects many competing influences
• Try to identify exogenous variation in household resources to see whether higher in-
come/resources cause lower or higher fertility
• Some studies have examined the effect of a male partner losing a job on fertility (Lindo
2010) (fertility declines, but is this because of resources or because of unemployment?)
and the effect of the oil price shocks of the 1970s (Black et al 2013) (which increased
household resources for men working in the Appalachian coal mining region) – all of these
studies support children being a normal good: fertility increases with more resources

1
• Lovenheim and Mumford (2013) look at the effect of changes in house prices on fertility

– As house prices rise, this may increase the costs of children (children are a comple-
ment to housing), so there could be a substitution effect away from children
– But, housing wealth increases for home owners – and this can be borrowed against
(equity release)
– Data from 1976-2008 (pre-GFC): real house prices and microdata tying individuals
to the MSA (small geographical area) of residence
– Mainly see house price increases in the sample
– Bigger increase in house prices associated with bigger increase in fertility for home-
owners, not for renters
– Control for macroeconomic conditions
– Bigger effects amongst older age groups – suggestive of an effect on completed fer-
tility; not just a timing effect
– Bigger effects for those who already have one child, and for higher household incomes

DO FAMILY WEALTH SHOCKS AFFECT FERTILITY CHOICES? 471

Table 2.—Linear Probability Model Estimates of the Effect of Housing Prices on Birth Probability
Independent Variable (1) (2) (3) (4) (5) (6)
A: Home Owners
Home value ($100,000) 0.0016 0.0020
(0.0011) (0.0013)
∗∗
2-year home value change ($100,000) 0.0089 0.0088∗∗
(0.0018) (0.0019)
4-year home value change ($100,000) 0.0082∗∗ 0.0085∗∗
(0.0015) (0.0002)
Real family income ($100,000) −0.0009 −0.0004 −0.0017 −0.0009 −0.0001 −0.0013
(0.0019) (0.0018) (0.0018) (0.0020) (0.0020) (0.0020)
MSA fixed effects? No No No Yes Yes Yes
R2 0.055 0.056 0.056 0.069 0.069 0.070
B: Renters
Home value ($100,000) −0.0047 0.0035
(0.0048) (0.0030)
2-year home value change ($100,000) −0.0015 0.0001
(0.0062) (0.0045)
4-year home value change ($100,000) −0.0001 0.0019
(0.0052) (0.0031)
Real family income ($100,000) −0.0093∗ −0.0079 −0.0084 −0.0049 −0.0041 −0.0046
(0.0050) (0.0054) (0.0057) (0.0055) (0.0060) (0.0063)
MSA fixed effects? No No No Yes Yes Yes
R2 0.039 0.040 0.041 0.045 0.046 0.049
Dependent variable: Dummy = 1 if gave birth in the previous year. Authors’ estimation of equation (2). In columns 1–3, respondents not in an MSA are assigned to a non-MSA state-specific cluster. Estimates in
columns 4–6 use only respondents who live in an identifiable MSA at the time of the interview. All estimates include state and year fixed effects, age group dummies (with 25–29 as the excluded category), educational
attainment dummies (with no high school diploma as the excluded category), and controls for marital status, the number of other children in the household, state-by-year unemployment rates, and state-by-year real
income per capita. For the renter sample in panel B, housing price measures are calculated using home owners within each MSA and year as described in the text. Standard errors clustered at the MSA level are in
parentheses. Significant at **5% and *10%.
Source: 1985–2007 Panel Study of Income Dynamics, women ages 25–44; those who moved in the prior four years are excluded.

Source: Lovenheim and Mumford (2013)

rates are not sorting into regions in which housing prices are
growing the fastest.16 In columns 4 to 6 of table 2, we include
MSA fixed effects that control for the systematic differences
among households across MSAs within states in underly-
ing fertility rates. Although these fixed effects significantly
reduce the housing price change variation, the estimates are
virtually identical to those using state fixed effects.
In every column of panel A of table 2, the income coef-
ficient is negative and insignificant. The magnitudes range
from −0.0001 to −0.0017 for a $100,0000 change in family
income. While these estimates can be interpreted as indi-
cating a negative effect of family income on fertility, we
urge caution in such an interpretation because we lack an
instrument to generate exogenous income variation in our
sample. These negative coefficients likely are driven by many
of the same biases that drive the negative cross-sectional cor-
relation between fertility and income at the aggregate level.
We include income in our models as a control variable that
provides an important measure of each woman’s economic
circumstances, but the coefficient on income likely does not
identify a causal effect. Importantly, all of our estimates are
robust to excluding family income from our models. 2
One test of whether the effects we are estimating can be
attributed to wealth rather than to an MSA-level shock that
likely negative (or at least nonpositive). Rising home prices
do not provide a wealth increase to renters but may increase
rental prices and cause a substitution effect. We therefore esti-
mate a version of equation (2) using MSA-by-year average
home prices for home owners as the measure of housing price
for renters. Panel B of table 2 presents these estimates, with
specifications that are the same as those for the corresponding
columns of panel A.
The negative coefficients on home price changes in
columns 2 and 3 are suggestive of a small substitution effect;
however, the estimates in columns 5 and 6 are positive, sug-
gesting no substitution effect. Regardless, in no column is
the home price estimate statistically significantly different
from 0 at even the 10% level. While these results provide
supporting evidence for the causal interpretation of our esti-
mates among home owners and suggest that the negative bias
stemming from income effects in our estimates are small, we
caution against direct comparisons because as table 1 shows,
renters are quite different from home owners along several
dimensions. Our results using the PSID data among home
owners unequivocally reject a negative relationship between
housing wealth and fertility and strongly suggest that those
who experience housing wealth increases are more likely to
have children, thus suggesting that any substitution effect is
 price change for the MSA the individual lived in for at least the past four years. Columns 3 and 4 use the simulated housing price change for the MSA of the original 1968 respondent or
age 20 for those added to the PSID in the 1997 immigrant sample or the 1990–1992 resample. All estimates include MSA and year fixed effects, age group dummies (with 25–29 as the
ttainment dummies (with no high school diploma as the excluded category), and controls for marital status, the number of other children in the household, state-by-year unemployment
me per capita. The estimation sample includes only respondents who live in an identifiable MSA at the time of the interview and own a home. Standard errors clustered at the MSA level
**5% and *10%.
y of Income Dynamics, women ages 25–44, those who moved in the prior four years are excluded.

al MSAs, a method that restricts housing Table 4.—Linear Probability Model Estimates of the Effect of
Four-Year Housing Price Change on Birth Probability for Home
o be the same in each year in each MSA. 17
Owners, by Age
esults using these price changes. The esti-
Estimated Mean Estimated %
at smaller than those in table 2: a $100,000 Four-Year Home Effect of Fertility Change in Birth
rices in the previous two years is associ- Price Change $100,000 Increase Rate Probability
percentage point increase in the likelihood Interacted with: (1) (2) (3)
d a $100,000 increase in home prices in Age group
ears is associated with a 0.0057 percent- 15–19 −0.0059∗∗ 0.0327 −18.04%
(0.0016)
in the likelihood of giving birth. Though 20–24 −0.0049 0.0740 −6.62
smaller, they still are statistically different (0.0037)
∗∗
evel and indicate a sizable effect of hous- 25–29 0.0175 0.1172 14.93
(0.0054)
lity. The smaller magnitude suggests that 30–34 0.0144∗∗ 0.0865 16.65
n with higher fertility to neighborhoods (0.0040)
g price growth may have caused a small 35–39 0.0081∗∗ 0.0263 30.80
(0.0020)
results shown in table 2. The implied hous- 40–44 0.0042∗∗ 0.0056 75.00
y using the four-year home value change (0.0014)
d to an elasticity of 0.13 implied by using Authors’ estimation of equation (2) with interaction terms for each age group in the regression. The
ice change. Defining the simulated price specification includes MSA and year fixed effects, age group dummies, educational attainment dummies,
and controls for marital status, the number of other children in the household, state-by-year unemployment
e original rather than the current MSA has rates, and state-by-year real income per capita. The estimation sample includes only respondents who live
in an identifiable MSA at the time of the interview who own a home. Standard errors clustered at the MSA
ults and indicates that selective migration level are in parentheses. Significant at **5% and *10%.
Source: 1985–2007 Panel Study of Income Dynamics, women ages 15–44; those who moved in the prior
t causing any bias in our estimates. four years are excluded.

DO FAMILY WEALTH SHOCKS AFFECT FERTILITY Source: Lovenheim CHOICES?and Mumford (2013) 473
ty Timing or a Total Fertility Effect?
of Current and Lagged Housing Price Changes all Table
other 6.—Linear
specifications. Probability For these
Model young
Estimates women,
of the Effect especially
of
us far on Fertility
suggest that families experiencing those Four-Year
in the Housing
15–19 Pricegroup,
age Changehome on Birth Probability
ownership for Home
likely means
Owners, by Number of Children, Family Income, and Decade
growth
Dependent are Variable:
more likelyDependent to have Variable:
a child in that the woman lives with her parents, who own the home.
h could indicate changes in the timing of The estimated effect ofEstimated
Dummy=1 If Gave Number of Children Born
a $100,000 increase Mean Estimated %
inChange
homein value
Birth in Previous Year over Prior Four Years Four-Year Home Effect of Fertility Birth
ertility over (1) the life course. In table
(2) 4, we (to the
Price Changeparents) for these 15-
$100,000 Increase to 19-year-old
Rate women
Probability is an
of home price changes on total fertility 18% reduction
Interacted with: in the likelihood
(1) of giving(2) birth. Though (3) the
0.0079∗∗ 0.0286∗∗
-year home (0.0024) price changes with
(0.0110)age group negative relationship
Number of children between family income and fertility of
specification,
0.0009 we have included −0.0044 women young women is well documented,
0 children −0.0007 this0.0428
is the first evidence −1.64% of
g with (0.0018)the women age 25 (0.0102) to 44 used in which we are aware indicating (0.0025)
a causal0.0727
negative relationship
0.072 0.253 1 child 0.0305∗∗ 41.95
on (2) using both four-year housing price change (P − P ) and lagged
between family wealth and
(0.0048)fertility for teenage women.
t t−4
cantly
P t−4 − P restricts
t−8 the variation
). All estimates include MSAin andhome price
year fixed changes
effects, age group The results reported 0.0041
2 children in table∗
4 also
0.0448indicate 9.15 that the
hin the same
t dummies, MSA
and controls in a given
for marital year.
status, the numberHowever, at ain response among 25- to 44-year-old-women
of other children (0.0024)
is not only being
mployment rates, and state-by-year real income per capita. The estimation 3+ children 0.0056∗ 0.0494 11.34
e level of growth will be higher for more expensive
ts who live in an identifiable MSA at the time of the interview and who
eported,
stered at the we
MSAhave controlled
level are for
in parentheses. laggedat home
Significant **5% andprice
*10%.
driven by younger women. (0.0032)In fact, women in all age groups
s on
dy the simulated
of Income Dynamics, womenhome agesprice
25–44;change
those whovariables
moved in theare
prior overFamily25 income
respond positively to∗∗home price changes, with the
e estimates are available from the authors on request largest Top quartile 0.0103 0.0543 18.97
percentage change in birth probability occurring for
entifying variation in these models is coming from (0.0023)
e differences, which do not vary cross-sectionally the 35- to
Third quartile44-year-old-women. 0.0105 ∗∗ Taken together,
0.0605 these
17.36 esti-
g of fertility but actually cause an increase mates
uction. suggest that home(0.0049)
Second quartile
price∗∗changes do not solely induce a
0.0076 0.0515 14.76
e. By multiplying each of the coefficients (0.0038)
ulate the effect on total fertility. This cal- Bottom quartile −0.0018 0.0427 −4.22
(0.0034)
hat a $100,000 increase in housing wealth Decade
number of children born to women ages 1985–1989 0.0046∗ 0.0618 7.44
which is 18.8% of the underlying total (0.0032)
1990–1999 0.0098∗∗ 0.0517 18.96
is population. Considering all women of (0.0027)
total fertility increases by 0.17, a 9.8% 2001–2007 0.0101∗∗ 0.0415 24.34
o baseline. (0.0027)
riticism of our calculation of total fertil- Authors’ estimation of equation 2 with interaction terms for specified observable characteristics. Each
panel is a separate regression, and all specifications include MSA and year fixed effects, age group dummies,
the calculation assumes that conditional educational attainment dummies, and controls for marital status, the number of other children in the
ome price change, fertility decisions are household, state-by-year unemployment rates, and state-by-year real income per capita. The estimation
sample includes only respondents who live in an identifiable MSA at the time of the interview and own a
more lagged changes. For example, if a home. Standard errors clustered at the MSA-level are in parentheses. Significant at **5% and *10%.
Source: 1985–2007 Panel Study of Income Dynamics, women ages 25–44; those who moved in the prior
es a home price increase when she is 29, four years are excluded.
e likelihood she gives birth when she is 35.
lagged home price changes will cause us Source: Lovenheim and Mumford (2013)
al fertility effect using the estimates from fertility response is likely quite heterogeneous. To examine
able 5, we present results from estimates several sources of heterogeneity, we interact the four-year
th both the four-year home value change home price change with indicators for various characteristics.
he four-year lagged four-year home value These results are presented in table 6.
8 ). If the increased probability of birth was The top of table 6 reports results from interacting the four-
shift, we would expect to see a decrease in year home price change with the number of children already
irth in the years after the response. Column born to the woman. We find that there is no response by
es that this is not the case. The lagged four- women who do not already 3 have a child. This finding helps
effect on the probability of birth, while the alleviate concern about selection into home ownership by
e for the current four-year change is similar women who plan to have a child being correlated with the
2 Financial incentives and fertility: completed fertility
• We expect a sufficiently large financial incentive to encourage fertility: budget constraint
expands only if birth occurs, so some ‘marginal’ children will be born

• Two approaches: specific financial incentive for births, eg. Baby Bonus; or a financial
incentive inherent in a welfare policy, eg. higher payment rate of Earned Income Tax
Credit (in the US) for families with more children

– Universal financial incentives will be expensive: paid for all births, not just the
marginal births induced by the incentive
– Fertility incentives in welfare systems may be seen as perverse

• Milligan (2005) – effects of a pronatalist transfer in Quebec (up to C$8000 per child)

– As applied to Quebec and not the rest of Canada, use the rest of Canada as a control
group
– Also, much larger incentives for third child than for first and second: ability to
compare different responses based on how many existing children
– Overall, a significant effect on fertility: 25% increase for those eligible for the maxi-
mum benefit
548 THE REVIEW OF ECONOMICS AND STATISTICS

TABLE 6.—REGRESSION RESULTS

Independent Variable (a) (b) (c) (d)
Pseudo R2 0.0003 0.058 0.131 0.132
1996 dummy ! Quebec 0.024* (0.005) 0.034* (0.006) 0.039* (0.007) 0.053* (0.010)
1996 dummy 0.009 (0.005) 0.013* (0.006) 0.031* (0.008) 0.028* (0.010)
Implied percentage increase in probability of having a child 5.6% 7.8% 8.7% 12.0%
Quebec "0.014* (0.007) "0.021* (0.007) "0.005 (0.009) 0.023 (0.020)
One older child — 0.205* (0.016) 0.193* (0.017) 0.192* (0.017)
Two or more older children — "0.163* (0.011) "0.203* (0.008) "0.205* (0.007)
Female age 25–34 — 0.187* (0.009) 0.107* (0.013) 0.107* (0.013)
Female immigrant — 0.032* (0.007) 0.052* (0.012) 0.055* (0.009)
Female Francophone — "0.047* (0.010) "0.037* (0.017) "0.035* (0.015)
Female Anglophone — "0.049* (0.012) "0.009 (0.017) "0.007 (0.016)
Female high school — "0.015* (0.006) "0.055* (0.007) "0.054* (0.007)
Female post–high school — "0.086* (0.004) "0.118* (0.008) "0.118* (0.008)
Female university degree — "0.192* (0.005) "0.235* (0.011) "0.236* (0.010)
Male age 25–34 — — 0.148* (0.018) 0.148* (0.018)
Male age 35–44 — — 0.089* (0.013) 0.090* (0.013)
Male age 45# — — "0.114* (0.010) "0.114* (0.010)
Male immigrant — — 0.014* (0.005) 0.017* (0.005)
Male Francophone — — "0.054* (0.012) "0.051* (0.011)
Male Anglophone — — "0.066* (0.007) "0.064* (0.006)
Male high school — — 0.004 (0.006) 0.004 (0.005)
Male post–high school — — 0.015* (0.008) 0.016* (0.007)
Male university degree — — 0.031* (0.006) 0.032* (0.006)
Married — — 0.206* (0.020) 0.202* (0.019)
Lives in urban area — — "0.068* (0.006) "0.073* (0.009)
Family income (C$10,000) — — 0.175* (0.018) 0.177* (0.015)
Provincial GDP growth — — — 0.005 (0.006)
Provincial migration rate — — — "0.015* (0.006)
Provincial education spending — — — 0.037* (0.018)
Dependent variable: Had a child.
Notes: Reported coefficients are marginal probabilities from probit regressions using the full sample of 136,885 observations. A constant term was included but is not reported. Robust standard errors with clustering
on provinces are reported beside the corresponding estimates. Coefficients significant at the 5% level are indicated with an asterisk. The implied percentage increase in the probability of having a child is calculated
as described in the text.

Source: Milligan (2005)

between Quebec and 1996 dummy. This interaction picks up
any differential trends in fertility among residents of Que-
bec relative to those in the rest of Canada. The variables
included in Xijt vary by specification. All models are esti-
mated as probits, with standard errors derived from the
Huber-White robust estimator for the variance-covariance
matrix, with clustering on provinces. The reported estimates
are marginal probabilities for each of the included indepen-
dent variables. These estimates can be interpreted as the
marginal change in the probability of having a child during
the Census window for a change in the corresponding
independent variable.
As mentioned in the discussion of the timing, the4program
was introduced in the middle of the 1991 Census window.
This means that the interpretation of the coefficients should
dummy, and their interaction. Without other control vari-
ables, the interaction term provides a measure of the uncon-
ditional average difference in fertility in Quebec in 1996
compared to 1991. The marginal probability implied by the
estimated coefficient on the interaction term is 0.024. As
expected, this is the same as the difference-in-differences
estimate of the treatment effect reported in table 5. Given
that the proportion of women with a child under six in
Quebec in 1991 was 0.418, and the estimated marginal
probability from the 1996 trend variable is 0.009, the 0.024
estimate therefore implies a 5.6% increase in the probability
of having a child for women in Quebec in 1996.
The second column expands the set of regressors to
include controls for several characteristics of the mother.
With these variables included, the implied percentage in-
 550 THE REVIEW OF ECONOMICS AND STATISTICS

TABLE 7.—IMPACT OF ALLOWANCE FOR NEWBORN CHILDREN ON DIFFERENT FAMILY TYPES

Older Children
Zero One Two or more Pooled
Observations 99,508 21,032 16,345 136,885
Pseudo R2 0.1361 0.083 0.028 0.132
Zero older children ! Quebec ! 1996 dummy 0.041* — — 0.045*
(0.008) (0.010)
Implied percentage increase in probability of having a child 9.8% — — 10.7%
One older child ! Quebec ! 1996 dummy — 0.080* — 0.080*
(0.017) (0.014)
Implied percentage increase in probability of having a child — 13.1% — 12.6%
Two or more older children ! Quebec ! 1996 dummy — — 0.082* 0.082*
(0.018) (0.014)
Implied percentage increase in probability of having a child — — 24.7% 25.0%
Quebec 0.009 0.036 0.080 0.035
(0.015) (0.045) (0.044) (0.022)
1996 dummy 0.027* "0.015 0.054* 0.027*
(0.006) (0.018) (0.027) (0.009)
One older child — — — 0.209*
(0.013)
Two or more older children — — — "0.212*
(0.008)
One older child ! Quebec — — — "0.054*
(0.013)
Two or more other children ! Quebec — — — "0.026*
(0.010)
One other child ! 1996 dummy — — — "0.013
(0.006)
Two or more other children ! 1996 dummy — — — 0.023*
(0.009)
Other control variables Yes Yes Yes Yes
Dependent variable: Had a child.
Notes: Reported coefficients are marginal probabilities from probit regressions on the relevant subsample. Control variables as in table 6, specification (d), are included, but not reported. Robust standard errors
with clustering on provinces are reported below the corresponding estimates. Coefficients significant at the 5% level are indicated with an asterisk. The implied percentage increase in the probability of having a
child is calculated as described in the text.

Source: Milligan (2005)

enced by Quebec during this period. The results are not In order to provide more convincing evidence of a causal
– These
reportedresults
here, but are in contrast
are available with studies of the
upon request. link,effects
I presentofresults
welfare policies
that compare theon fertility:
fertility of families
Finally,
often with the Censusestimated
insignificant data I can once more address the facing the birth of children of different parities. With the
effects
potential problem of intertemporal shifting of births. I take higher payment made to births of third or higher parity, a
the total number
– Milligan shows of children in the 1991who
that women sample of women
would stronger response
be affected by these reform
by welfare families isare
expected.
least re-
in the age range 25 to 34 and compare it with the same Table 7 reports the results of regressions on three sub-
sponsive to the Quebec fertility incentive: it is higher income women and
calculation in 1996, for both Quebec and the rest of Canada. samples comprising families with zero, one, and two or
women
with
If womenmore education
in Quebec reactedwho
to theare
ANCmost likely
by having to respond
more more older children. These results appear in the first three
babies sooner, followed by fewer later, then the total number columns of the table. These regressions use the empirical
– Financial incentives
of children observed matter
in 1996 should –notbut
havewith
changedshort-term
specificationdata cannot
from table see the
6, including effect
the full set of on
control
relative to the fertility
completed rest of Canada. In 1991, the average number variables. For families who entered the Census window with
of children in the rest of Canada among women between 25 no children, the estimated increase in the probability of
• and 34 was
In contrast, 1.220, and
Cohen et alin Quebec
(2013)it find
was 1.097 (a difference
smaller incentivehaving a childfor
effects is 4.1 percentage
higher incomepoints, which implies a
households
of 0.124). By 1996, the average in the rest of Canada had 9.8% increase in probability over the counterfactual as-
in Israeli
fallendata
to 1.187 while it had risen in Quebec to 1.132 (a sumption that Quebec followed the same trend as the rest of
difference of 0.054). Using this difference in differences, the Canada. For second children, the percentage increase in
• The impact
number of ofchildren
the Australian
in Quebec rose Baby Bonus
by 0.069, or is more
6.3%, difficult
probability to identify
is 13.1%, than
and for third the Quebec
or higher-parity children,
policy:between
it was 1991 and 1996. This
universally provides some
imposed, so we further evi- have
do not the probability
a natural is estimated
controlto group
increase by 24.7% over its
dence in favor of the ANC having a permanent rather than counterfactual level. All three estimates are statistically
a transitory impact on fertility.
– Time series analysis does suggest an increase significant at conventional
in the fertility ratelevels. The point
(Sinclair et estimates
al 2012) across
the parities show a pattern consistent with the incentives of
– but ruling out other influences is hard the ANC. However, it must be noted that the confidence
C. Results for Different Family Structures
intervals of the estimates for different parities overlap, so
The evidence presented in table 6 shows a strong increase the statistical significance of any inference about the rank-
3 Financial incentives and fertility: timing
in fertility in Quebec following the introduction of the ANC. ing of the results by parity remains imprecise.

• Incentive effects on the timing of births are also likely: the timing of conception and birth
can, to some extent, be controlled
• The US personal income tax system incentivises births in the later part of the calendar
year: the annual tax savings associated with a birth are applied to the full financial year
if the birth takes place before the end of the financial year – these benefits can be large
if EITC eligible
• Dickert-Conlin and Chandra (1999) document higher than expected births in the last week
of the year, and lower than expected in the first week of the year, and the probability of
a December birth is positively associated with the tax benefit expected

5
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Fig. 2.—Distribution of births over the last week of December and first week of January. Source: Authors’ tabulations from Vital
Statistics of the United States, vol. 1, Natality (1989–92) and National Center for Health Statistics data sets, 1978–88.

172 Source: Dickert-Conlinjournal of political

and Chandra (1999) economy
TABLE 4
Marginal Effects from Probit Model

Specification
(N 5 170)
(1) (2)
Change in tax liability from December birth .344** .2269***
(thousands) (.1596) (.1907)
AGI (thousands) .0022 2.0041
(.0023) (.0060)
Change in tax liability from December birth 3 AGI .0091***
(thousands) (.0080)
Mother’s earnings (thousands) .0032 .0033
(.0045) (.0046)
First or second child? (1 5 yes) 2.2334** 2.2505**
(.1084) (.1081)
Mother’s education 2.0338* 2.0304
(.0192) (.0197)
Marital status .1588 .2039
(.1221) (.1260)
Urban residence? (1 5 yes) .1614 .1653*
(.0967) (.0964)
Mother’s age 2.0159 2.0174
(.0122) (.0125)
African-American? (1 5 yes) .0778 .0713
(.1123) (.1126)
Source.—Authors’ tabulations from the NLSY.
Note.—The dependent variable equals one if the birth took place in the last week of December and zero
if it took place in the first week of January. Standard errors for marginal effects at the point of sample means
are in parentheses.
* Statistically significant at the 10 percent level.
** Statistically significant at the 5 percent level.
*** Jointly significant at the 6 percent level.

Source: Dickert-Conlin and Chandra (1999)

To consider the possibility that families are not equally responsive
to tax incentives at all levels of income, we estimate another specifi-
• The introduction of that
cation the includes
Baby Bonus had similar
an interaction termeffects:
betweenannounced
the change inseven
tax weeks before
introduction liability and adjusted gross income. The results are in column 2 of
table 4 and are very consistent with those of our primary specifica-
– Estimatedtion. Thearound
that coefficients
1000onbirths
the tax and delayed
were interaction terms are
– mainly positive the timing of
through
Caesarianand jointlyprocedures
significant atand
the 6inducements The positive
percent level.(Gans coefficient
7
section and Leigh 2009)
on the interaction term suggests that the responsiveness to the tax
– Increasedincentives increases
birthweights also with income. For AGI above $12,000, the mar-
observed
ginal effect of the tax benefit is larger than the average marginal
effect estimated in column 1.8
7 6
The coefficients on AGI and the interaction term between AGI and the tax bene-
fit are jointly insignificant, which is consistent with our results in col. 1.
8
We estimated numerous specifications to test the sensitivity of our choice of statis-
250 J.S. Gans, A. Leigh / Journal of Public Economics 93 (2009) 246–263

254 J.S. Gans, A. Leigh / Journal of Public Economics 93 (2009) 246–263

Fig. 1. Introduction Effect in 2004. Panel A shows daily birth counts. Panel B shows births relative to expected, accounting for year, day of week, day of year, and
public holidays. In panel B, shadingFig. 3. Comparing
shows birth procedures.
days of unusually low birthsData cover
in June June–July
and 2004,
unusually highand show
births in daily
July. birth counts.

Source: Gans and Leigh (2009)

To purge the day of the week effect, we therefore adjust the series for day of week, day of year, holiday, and year effects. We do
this by estimating the following regression, using all data except June and July 2004:

Birthsi ¼ IiYear " IiDay of Week

þ IiDay of Year
þ IiPublic Holiday þ ei ð1Þ

In Eq. (1), the dependent variable is the number of babies born on day i. This is expressed as a function of indicators for the year
interacted with the day of the week (e.g. allowing for a separate effect for Thursdays in 2004), for the day of the year (e.g. allowing
for a separate effect on July 1), and an indicator for public holidays (which do not always fall on the same day of the week or day of
the year).24 For simplicity, parameters are omitted.
1
We then use this regression to make an out-of-sample prediction of the daily birth count (Births) for June and July 2004. Panel B
1
shows the difference between this predicted birth count and the observed birth count (Births–Births). In the month before the
policy change, births were well below the level that would have been expected, while in the month afterwards, births were well
above the expected level.
To formally test the effect of the Baby Bonus on the number of births, we estimate the regressions:

Birthsi ¼ IiBaby Bonus þ IiYear " IiDay of Week

þ IiDay of Year
þ IiPublic Holiday þ ei ð2Þ

lnðBirthsi Þ ¼ IiBaby Bonus þ IiYear " IiDay of Week

þ IiDay of Year
þ IiPublic Holiday þ ei ð3Þ

In Eqs. (2) and (3), the dependent variables are the daily birth count and the log of the daily birth count, respectively. The
indicator variable IBaby Bonus denotes dates after which the Baby Bonus took effect. The other variables are as defined above.
To see the effect of the Baby Bonus on the timing of births, we progressively widen the window of analysis. The first column of
Table 1 restricts the sample to the last 7 days of June and the first 7 days of July, the second column to the last 14 days of June and
the first 14 days of July, and so on.25

Fig.
24 4. Comparing birth procedures. Regression-adjusted. Data cover June–July 2004, and show births relative to expected, accounting for day of week and public
We include all Australia-wide public holidays, plus the Queen's Birthday holiday, which is celebrated on the second Monday in June in all states and territories
holidays. Shading shows days of unusually low births in June and unusually high births in July.
except Western Australia.
25
Widening the window has two purposes. First, it Source: Gans
allows for births andbeen
to have Leigh
moved(2009)
by more than one week. Second, it accounts for the possibility that
confirm
some that
parents maythe introduction
have of the
attempted to delay Baby
their Bonus
child's birth was the but
until July, likely driver
instead onlyof this the
moved shift. Indate
birth thefrom
final week of
mid-June June, 2004,
to late-June. Such there were
‘unsuccessful
moves’ wouldreports
numerous attenuateof
the estimates
elective derived from
cesarean focusing on
procedures a narrow
being fully booked for the first week of July.29
window.
To empirically estimate the effect of the introduction of the Baby Bonus on different types of birth procedures, we use a
similar estimation strategy to that employed in Section 3. However, since we do not have data on births procedures over multiple

29
For example, Anderson (2004) quoting that for one hospital “all of the planned spots were taken earlier than they normally would have been.” ABC Television
(July 1, 2004) reported one hospital where women in labor were resisting coming in and one obstetrician who had only seen one scheduled induction and elective
caesarian, for the three last days of June and 14 on the first two days of July. See also Massoud (2004), Scott (2004), and Wells (2004). As early as June 18, 2004,
The Age reported on pressure for Health Minister to change the introduction date of the Baby Bonus and bring it forward following reports that 10% of mothers
had asked to postpone planned cesareans.

7
Short answer
1. Explain why it has been difficult to estimate the long-term impact of the Australian Baby
Bonus on fertility.

2. Research suggests that pronatalist policies such as the Quebec Allowance for Newborn
Children can have significant incentive effects on fertility levels. At the same time, esti-
mates of the effects of fertility incentives in welfare policies such as the Aid to Families
with Dependent Children (AFDC) in the US have found insignificant effects of financial
incentives for fertility. How can this be reconciled?