The Effect of TaxBenefit Policies on Fertility

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The Effect of Tax-Benefit Policies on Fertility
Female Labor Force Participation in the United
States

• Cristobal Ridao-Cano World Bank
• Robert McNown Department of Economics
  Institute of Behavior Science- University of
  Colorado, Boulder
• Journal of Policy Modeling, June 2005
• Derric B. Jacobs

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The Purpose

• Investigates the effects of the tax exemption for
  dependents child tax credits on age-specific
  fertility rates.
• Investigates the effects on female labor supply.
• Investigation is in the U.S. using data between
  1948 1997.

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Population is an Issue

• Population issues have arisen in different parts
  of the world with opposing positions
• -Increasing Populations China (0.6) India
• -Decreasing Populations Italy (0.0), Spain,
  EU
• The Three largest populated Nations China,
  India, and the U.S.
• The U.S. has a Positive growth rate _at_ 0.9 (U.S.
  Census Bureau International Data Base)

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U.S. Policy Populations

• The U.S. has no official population policy
• Long Tradition of tax and welfare policies
• -Fed. tax exemption for Dependents (1917)
• -Child Care Tax Credit (1976)
• -Child Tax Credit (1998)

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Methodology

• Traditional regressions could not work due to
  using time series data that tends to act
  stationary. (Stationary time series returns
  quickly and frequently to its mean value).
• Cointegrating Equation Represents a steady state
  or long run equilibrium relation between a set of
  integrated series linked between one or more
  stationary linear combinations. It allows a
  dynamic representation as an error correction
  model.

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Cointegration Equation
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Variables of the Study

• Fertility rates by age group
• 20-24
• 25-34
• Labor Force participation rates for both female
  age groups
• Male income (median) of same age groups
• Female wage of same age groups
• Educational attainment () of woman who completed
  at least 1 year of college

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Key Policy Variable

• Value of the tax exemption per dependent.
• - The product of statutory value of the
  exemption times the average marginal tax rate in
  1997 dollars.
• (Variation in value of tax exemption over the
  years)

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Dummy Variables

• Availability of Birth Control
• Prior to 1963 0
• 1963 onward 1
• Child Tax Credit
• Prior to 1976 0
• 1976 onward 1

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Results for Age Group 20-24

• Effect of tax exemption
• -Statistically significant with positive
  elasticity of 0.74
• -When education is removed, 2.0
• 0.74 implies that a 100 increase in the tax
  exemption would produce 19 babies per 1000 women.
  
• The tax exemption had a small negative effect on
  female labor supply.

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Results for 25-34

• Effects of tax exemption
• - Elasticity is 0.2.
• - Education has a strong negative effect.
• Estimates A 100 increase in in value of tax
  exemptions results in 3.6 births per 1000 women.
• Women's labor force participation in this age
  group also responds negatively.

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Summing it up

• The U.S. is unique in that it appears that tax
  policy influences fertility unlike many of the
  Western European nations in which analysis of tax
  incentives have shown little to no increase in
  population.
• With or without a formal population policy, the
  federal government has the ability to influence
  family size as well as influence the women's
  labor force participation.