What Entices the Stork? Fertility, Education and Family Payments

Developed economies, experiencing concomitant declining fertility and rising educational attainment, have introduced policies to boost fertility. We model substitution of bought-in services for parental time in the rearing and education of children in an economy where technological progress leads households to choose fewer, but better educated, children. We analyse the effects on fertility and education of a baby bonus, paid maternity leave and child-care subsidies. We establish conditions under which either maternity or child-care benefits are more efficacious in raising fertility, and we establish that a lump sum baby bonus will increase fertility only if the bonus increases faster than income per capita. Policies that stimulate fertility also raise parental investment in education per child. Copyright © 2010 The Economic Society of Australia.