Fertility under Income Uncertainty: The Role of Education Subsidies

Kanato Nakakuni ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Empirical studies suggest that income uncertainty depresses fertility, yet its policy im plications remain underexplored. This paper shows that income-tested education subsidies provide insurance against income risk for households with children, mitigating the negative effects of income uncertainty on fertility. I build and calibrate an incomplete-market general equilibrium lifecycle model with fertility and college enrollment choices, in which altruistic parents make asset transfers to support their children’s college education. Having more children increases the risk that parents may be unable to finance their children’s education after bad income shocks or, if they do finance it, must endure substantially lower lifetime consumption. This mechanism discourages fertility under income uncertainty and generates the observed negative relationship between income risk and fertility. Counterfactual exper iments show that income-tested college subsidies insure households against these risks by reducing education costs contingent on bad income shocks. The resulting fertility responses amplify the aggregate effects of the subsidy, including increases in educational attainment and intergenerational mobility.

Keywords: Fertility; incomplete markets; college subsidy; income risk (search for similar items in EconPapers)
JEL-codes: C68 I28 J13 J24 (search for similar items in EconPapers)
Pages: 66
Date: 2026-09
New Economics Papers: this item is included in nep-dem, nep-dge and nep-lma
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp780 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_780

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().