Cash transfers and fertility: from short to long run
Many developed countries are at risk of experiencing population decline due to low fertility rates, with potential adverse economic effects. As a response, governments are deploying family policies to increase the number of children. In this paper, we propose a dynamic life-cycle model of fertility and female labour force participation to assess their effectiveness. We use the short-run fertility effects of a cash transfer policy from Spain to calibrate its parameters. Using the calibrated model, we find that the impacts in the long run are half as large as in the short run. This is driven by differences in the responses of younger and older women at the time of implementation. The latter must react shortly after, as they cannot delay fertility much longer. The former anticipate their first birth. This generates additional births in the short run. We also study the effects of an alternative policy consisting of childcare subsidisation, and explore how the coexistence of temporary and permanent contracts in Spain, which have different earnings profiles, affects fertility and interacts with cash transfers, by raising the costs of career interruptions in crucial child-bearing years.