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We consider a bargaining model in which husband and wife decide on the allocation of time and disposable income, and fertility. Since her bargaining power would go down otherwise more strongly, the wife agrees to have a child only if the husband also leaves the labor market for a while. The daddy months subsidy enables the couple to overcome a hold-up problem and thereby improves efficiency. However, the same ruling harms other types of couples and may also reduce welfare in an endogenous taxation framework.
KeywordsFertility Bargaining Family policy Labor supply
JEL ClassificationD13 H21 J13 J18 J22
We would like to thank Dan Anderberg, Rainald Borck, Alessandro Cigno, Hélène Couprie, Elisabeth Gugl, Alexander Kemnitz, Kai Konrad, Panu Poutvaara, Kerstin Schneider, two anonymous referees, and participants of seminars and conferences at Aix-en-Provence, Berlin, Dresden, Hamburg, Klagenfurt, Lugano, and Munich for helpful comments on an earlier version of this paper.
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Conflict of interest
The authors declare that they have no conflict of interest.
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