Targeting Fertility and Female Participation Through the Income Tax

Ghazala Azmat and Libertad Gonzalez

No 4405, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We evaluate the effect of a 2003 reform in the Spanish income tax on fertility and the employment of mothers with small children. The reform introduced a tax credit for working mothers with children under the age of three, while also increasing child deductions for all households with children. Theoretically, given the interplay of these two components, the expected effect of the reform is ambiguous on both outcomes. We find that the combined reforms significantly increased both fertility (by almost five percent) and the employment rate of mothers with children under three (by two percent). These effects were more pronounced among less-educated women. In addition, to disentangle the impact of the two reform components, we use an earlier reform that increased child deductions in 1999. We find that the child deductions affect mothers' employment negatively, which implies that the 2003 tax credit would have increased employment even more (up to five percent) in the absence of the change in child deductions.

Keywords: family policy; fertility; female labor force participation; tax credit; child subsidy (search for similar items in EconPapers)
JEL-codes: H31 J13 J22 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2009-09
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Labour Economics, 2010, 17 (3), 487-502

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Journal Article: Targeting fertility and female participation through the income tax (2010)
Working Paper: Targeting fertility and female participation through the income tax (2009)
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