Working Paper No. 02-05

The Effect of Child Benefit Policies on Fertility and Female Labor Force Participation in Canada
Robert McNown and Cristobal Ridao-Cano
Februray 2002

ABSTRACT

This paper presents an analysis of the effects of Canadian child benefit policies on fertility and female labor supply. A theoretical model incorporates alternative forms of child benefit policies, and presents testable predictions for the econometric analysis. Cointegration methods accommodate problems of nonstationarity and endogeneity that characterize models of fertility and female labor supply. Time series data on fertility, female labor force participation, female wages, male incomes, female education, and child benefits show evidence of mixed orders of integration. Two cointegrating relations are found, and these are identified as a fertility relation and a female labor supply function. All economic variables, including child benefits, have statistically significant and appropriately signed coefficients. The estimates are used to evaluate the effects of policy and other economic changes on fertility.

JEL classification: H3, J0, C32.
Keywords: fertility, child benefits, time series models, cointegration.

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