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

Robert McNown, University of Colorado
Cristobal Ridao-Cano, University of Colorado at Boulder

This paper presents an investigation of the effects of the tax exemption for dependents and the child care tax credit on age-specific fertility rates for the U.S. 1948-1997. Effects of alternative tax and benefit programs on fertility and investments in child quality are analyzed in a theoretical model. Implications of the model are tested within a co-integration framework. Statistical evidence supports the existence of two co-integrating relations for each age group. One relation is identified as a fertility equation, with theoretically appropriate signs and significance of all coefficients, and the second is identified as a female labor supply equation. The two tax variables show positive effects on fertility, with the tax exemption accounting for a large portion of the short run variation in fertility for 20-24 year old women.