Denmark: Child Benefit Cuts Also Cuts Birth Rates
In 2010, Denmark introduced a new policy that put a ceiling of 35,000 DKK (approximately $5,000) on previously universal child benefits for families with three or more children. A 2018 study (Fertility and child benefits by Mathilde Almlund) finds that this policy change, which reduced household incomes by up to $3,000 per year per additional child, significantly negatively impacted fertility rates, especially for third and fourth children.
Key findings from the study include:
An increase in child benefits equivalent to $25 per month would induce a 3-4% increase in higher-order siblings born overall, but a 35-41% increase in third children and a 6-8% increase in fourth children specifically.
The effect was strongest for lower-income households. A $25/month benefit increase would boost fertility by nearly 30% for those below the poverty line, defined as 50% of median income.
There was no significant effect on fertility for 5th or higher-order children. The author suggests this may be because some families strongly prefer large families less sensitive to the marginal cost of an additional child.
The analysis indicates families base their fertility decisions on the full long-term schedule of expected benefits rather than just the payments in the first few years after a child is born. Alternative model specifications assuming high discount rates or that families ignore payments more than 5 years in the future did not fit the data either.
To identify these causal impacts, the study leveraged the fact that the reform created significant variation in the marginal child benefit loss across families depending on their existing number and age of children. Due to a phased implementation, the largest reductions in benefits were for the third child. Using detailed registry data on over 3 million Danish women aged 18-41 who were cohabiting with a male partner between 2005-2011, fertility responses could be precisely estimated.
The results provide strong evidence that child benefit programs can meaningfully influence fertility decisions, especially for lower-order parties and lower-income households. With below-replacement fertility becoming the norm in developed countries, the findings have important policy implications as societies grapple with aging populations' demographic and fiscal challenges. However, the author cautions that further research using a dynamic model of fertility is still needed to determine if these represent permanent reductions in fertility or simply delays in childbearing.