Short-run fertility effects of parental leave benefits: Evidence from a structural model

Based on a structural model of fertility and female labour force supply with unobserved heterogeneity and state dependence, we evaluate the 2007 reform of parental leave benefits in Germany, which replaced a flat, means-tested benefit by a generous earnings-related transfer. The model predicts a short-term fertility effect of about 4%, which is consistent with recent quasi-experimental evidence. The fertility effect is strongest for first births and increases with income. We use the model for a number of counterfactual policy experiments in which we vary the generosity of parental leave benefits.