Fertility and Family Leave Policies in Germany: Optimal Policy Design in a Dynamic Framework

Hanna Wang

No 1507, Working Papers from Barcelona School of Economics

Abstract: I develop and estimate a life-cycle discrete-choice model of fertility and female labor supply to study the optimal design of a range of child-related policies. First, I examine two German reforms that introduced wage-contingent parental leave payments and expanded access to low-cost public childcare. I find that both reforms raised completed fertility, with the parental leave reform having a particularly strong impact on highly educated women. Second, I solve for a budget-neutral optimal policy portfolio that maximizes either aggregate welfare or fertility, while ensuring that welfare and fertility do not decline for any education group. I consider four prominent child subsidies as well as the degree of tax jointness. My results show that optimal policy has the potential to increase welfare by 0.5% or fertility by 5.7%. While the solutions are qualitatively similar, they prioritize different policy instruments depending on the specific objective being targeted.

Keywords: childcare subsidies; fertility; optimal policy; parental leave (search for similar items in EconPapers)
JEL-codes: H21 J13 J24 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-dem, nep-dge, nep-eur, nep-lab and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1507

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