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 Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7014

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.