Tax Incentives and Fertility in Canada: Permanent vs. Transitory Effects

This paper seeks to provide evidence on whether short term responses in childbearing decisions apparently induced by changes in tax incentives are permanent or transitory. Using inter-jurisdictional differences in the implementation of the Family Allowance Program in Canada in the mid 70's, we first establish that Québec families responded quite strongly to the added incentives in the short run, particularly in the case of families with two or more children prior to being exposed to the program. However, tracking down the cohorts across the 1981 and 1991 Censuses, we find that the same group of Québec women who responded strongly in the short run subsequently showed a decrease in fertility relative to the rest of Canada. These results suggest that the bulk of the program impact was transitory. In summary, while prices seem to matter, their impact in this case appears to work through a timing effect.
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