Fertility and the Cost of a Child: Evidence from Quebec Parental Insurance Plan
AbstractThis paper analyzes fertility responses to family policies. We construct a dynamic model in which households make decisions on consumption, saving, and fertility. Our analytical model features discrete choices of fertility: the number and the timing of births. Our model generates new insights into fertility transitions and the timing of births in response to family policies.
We test the model on women affected by a parental leave reform in the Canadian province of Quebec. Beginning January 1, 2006, the government of Quebec launched the Quebec Parental Insurance Plan, also known as QPIP, which replaced Employment Insurance for residents of Quebec. Compared to Employment Insurance, which covered the residents rest of Canada, QPIP offers higher ceiling on insured income ($51, 000 compared with $39,000 in the rest of Canada) and higher income-replacement rates (ranging between 55% and 75%, depending on the specific plans). QPIP considerably increased the amount of cash transferred to families during the first year postpartum. Using data from Canadian Vital Statistics Birth Records, we show that the policy induced on average about 5 more live births per 1, 000 women. For those aged 25 to 34, the policy lead to some 10 more live births per 1,000 women, around 10 percent increase in fertility rate. These effects persist in the long run. Using data from Longitudinal Administrative Databank, we show that the effects are most prominent among the higher income earners, consistent with the program incentives and our model’s prediction. The paper sheds light on one important question amid the fertility literature: when we observe fertility responds to some incentives, are they permanent or just transitory? This paper addresses the issue by analyzing both cross-sectional transitory effects and cohorts’ completed fertility.