To bear, or not to bear: That is the economic question

Federal Reserve Bank of St. Louis - Regional Economist, Jul 2001 by Skiba, Paige M, Wall, Howard J

Taxes

The dependent tax deduction, which is a per-person income tax deduction, decreases the net costs of child services and should, therefore, increase the demand for them. Because this tax break is based on the number of dependents, it should have a relatively larger effect on the quantity of children, although the quality of children should also rise. Indeed, some studies have shown that relatively small increases in the value of this deduction can lead to significant increases in fertility.3 Other types of income-tax breaks-those related to expenditures on children, such as the deduction for child-care expenses-- should affect child quality relatively more than the number of children.

Welfare

The economic model of fertility suggests that welfare policies can also affect childbearing decisions. As with any other form of income, higher welfare payments should increase the demand for children. In addition, if welfare payments are tied to the number of children, the model predicts that these payments should affect the quantity of children relatively more than the quality. In a recent study, economists Jeff Grogger and Stephen Bronars found that higher base levels of welfare have indeed led to small increases in fertility among unwed mothers. However, the authors find no evidence that the extra payment mothers receive for an additional child affects fertility.4

Crime

Recent and extremely controversial research takes the application of the economics of fertility even further by linking the legalization of abortion in the early 1970s to the recent drop in crime rates.5 In the economic model of fertility, the availability of abortion decreases the potential number of children supplied. If people choose to prevent the births of children they did not plan for (the quantity effect), they will have more resources available to raise the children they do have. Because these children receive more resources, they should be less likely to commit crimes when they get older (the quality effect).

Combining the quantity and quality effects, law professor John Donohue and economics professor Steven Levitt argue that up to half of the recent reduction in violent crimes has been due to the legalization of abortion. Although they caution that their results should not be misinterpreted as "an endorsement of abortion or a call for intervention ... in the fertility decisions of women," their research has caused uproar from all sides. Lost in the uproar, though, is Donohue and Levitt's finding that the main source of the drop in crime has been through the reduced likelihood of a child becoming a criminal-the quality effect. This finding means that policies that improve the economic and social circumstances of children could have had the same or greater effects on crime than what Donohue and Levitt attribute to abortion.6

Conclusions

How does all of this talk about the quality and quantity of children help us? For one thing, it helps economists make sense of the fertility choices parents make, even though we know they don't necessarily use a calculator to balance the costs and benefits of having children. For another, the discussion-although sometimes controversial and uncomfortableprovides a useful framework for looking at a large number of important policies.