Appendix 1 Additional descriptives and estimation results
Appendix 2 Evidence on third births
The reform of child benefits for third births replaced a highly non-linear benefit-by-income mapping:
We expect an increase in third-child fertility particularly for high-income households. The incentives in a small segment of the gross household income distribution (65–80,000 DM) decline substantially and for the lowest income households the reform generated only a small change.
Table 27 shows the Mikrozensus-based results when applying the baseline estimation strategy, i.e., separating treatment and control groups based on educational attainment. Overall, fertility does not rise after the reform, and in the treatment group of the highly educated, we even find a significant negative coefficient estimate which suggests a decline in fertility for this group. Table 28 shows the estimation results based on the SOEP data. The coefficient estimates for the treatment effects have large standard errors and do not show clear patterns across the two definitions of treatment and control groups.
As these effects are inconclusive, we investigated the underlying income distribution for households with two children already in the treatment (high education) and control group (low education) for both datasets. Figures 21, 22, 23, 24 describe the results. Clearly, the income distributions particularly based on the broad definitions of treatment and control groups are not very distinct. As this may generate a measurement error in our estimations, we replaced the education-based approach by directly using household incomes. First, we inspect the fertility response of two-child households in the bottom and top income quartiles, and then, we separately consider the group of households who lost the most due to the reform, as their third-child fertility might have declined.
Table 29 shows the estimates for income quartile-based regressions for two-child households. Here, the Mikrozensus estimates of the treatment effect lose statistical significance. In Table 30, we explicitly consider households as treatment group who are located in the critical range between 55,400 DM and 81,000 DM gross household income (39,600–52,800 DM net household income) where we expect to see a drop in fertility after the reform. Interestingly, this specification confirms the negative expected fertility effect based on the SOEP data. While the sample size of the SOEP sample is smaller, it may be more precise in depicting the appropriate income range, because it measures income in gross amounts. The net incomes provided by the Mikrozensus might be less appropriate, because they are only proxies for the corresponding gross earnings and also the limits in net amounts for which the reform has a positive or negative effect are approximated.