Cost of Raising Children and the Recent Fertility Decline in Japan

Abstract

In this paper, the effect of the cost of raising children on fertility rate is estimated in order to test the hypothesis that this cost caused the recent fertility decline in Japan. Two measures of the cost of raising children were used. One measure was the cost on the Rothbarth model of equivalence scale, and the other was monthly expenditure on children (per child). Since the cost of raising children is an endogenous variable, instrument variable estimations were made. In the estimation in which the number of children is used as the dependent variable, the cost of children showed statistically significant negative effects on fertility. Thus, an implication for policy is that decreasing the cost of raising children is likely to have a positive affect on the fertility rate. Examples of such policies are extensions of the subsidies for education or medical expenses of young children.