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Vitruvius

Denmark: Fertility and Child Benefits

Study: Fertility and Child Benefits by Mathilde Almlund

Policy: Universal Child Benefit Cap – A benefit cap which reduced generosity for families with 3+ kids

Why it matters:

Across the OECD countries, fertility rates are predominantly below the replacement level, leading to aging populations and potential sustainability issues for social security systems. This has prompted several countries, including France, Spain, Germany, Australia, and Canada, to implement financial incentives aimed at boosting fertility rates. But do these measures work?

The big picture:

The study zeroes in on Denmark, where a policy change in 2010 reduced universal child benefits and introduced a ceiling on the total amount families could receive, thereby creating a natural experiment to assess the impact of financial incentives on fertility.

Details:

  • Before 2011, Danish families received a yearly child benefit for each child under 18, with the amount varying by the child’s age.
  • The 2010 reform imposed a 35,000 DKK ($5,600) cap on annual child benefits per household, affecting families with three or more children the most.
  • Researchers utilized a comprehensive panel dataset of the entire Danish population to examine how the reform impacted fertility, particularly among families with two or more children.

What they found:

  • The reform led to a significant, though varied, reduction in fertility, especially among families considering a third or fourth child.
  • Families with two children showed a 3-10% decline in higher-order births after the policy change.
  • As much as 35-41% for the third child, and 6-8% for the fourth child.
  • The effect of financial incentives on fertility was significant and positive for families with two and three children but diminished or became insignificant for larger families.

Between the lines:

  • Financial incentives do have an impact on fertility decisions, particularly for families on the brink of expanding beyond the socially normative two children.
  • However, the effect of these incentives diminishes with the number of children, suggesting that families with strong preferences for larger families are less influenced by financial considerations.
  • The study also reveals that the timing and structure of benefits (immediate vs. delayed) play a crucial role in how families respond to financial incentives.

The bottom line:

This study underscores the complex relationship between financial incentives and fertility decisions. While financial incentives can influence family planning decisions, their effectiveness varies significantly based on family size and the specific design of the benefits.

What’s next:

Further research is needed to determine whether these changes lead to a permanent reduction in fertility or merely a postponement of childbirth. Additionally, exploring dynamic models of fertility could provide deeper insights into long-term trends and the effectiveness of policy interventions.