DP7014 What Explains Fertility? Evidence from Italian Pension Reforms

Author(s): Francesco C. Billari , Vincenzo Galasso

Publication Date: October 2008

Keyword(s): altruism , fertility , old-age security , public pension systems

JEL(s): D64 , H55 , J13

Programme Areas: Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP7014.asp.asp

Why do people have kids in developed societies? We propose an empirical test of two alternative theories - children as 'consumption' vs. 'investment' good. We use as a natural experiment the Italian pension reforms of the 90s that introduced a clear discontinuity in the treatment across workers. This policy experiment is particularly well suited, since the 'consumption' motive predicts lower future pensions to reduce fertility, while the 'old-age security' to increase it. Our empirical analysis identifies a clear and robust positive effect of less generous future pensions on post-reform fertility. These findings are consistent with 'old-age security' even for contemporary fertility.