Fertility subsidies can have ambiguous effects on birth timing

Abstract

Pronatalist subsidies often vary with birth order (parity). I study the effect of such subsidies on birth timing in a life-cycle model of fertility choice. In the model, births permanently reduce the rate of human capital accumulation. While subsidies to marginal births always accelerate the time to next birth, subsidies to higher-order births can extend those times for women at low parities. The result is not driven by income effects, quantity-quality substitution, biological constraints, or uncertainty. Instead, it is that slower anticipated earnings growth in the future raises the marginal value of human capital in the present.