Fertility rates in the developed world are well below the replacement rate of 2.1 children per woman needed to sustain the population. Governments are worried about the effects of natural population decline on the economy and have implemented incentive schemes to encourage people to have more babies. One such scheme is the cheque bebé, a 2,500-euro transfer implemented by the Spanish government in 2007. The evidence indicates that the number of births increased by 6% nine months after its introduction. However, population dynamics depend on the total number of children women have had by the end of their fertile cycle, the completed fertility rate. It is difficult to assess this effect empirically. This study employs a model that simulates the labour force participation and fertility decisions of Spanish women throughout their life cycle, accounting in a realistic way for the various costs associated to childbearing, in order to assess the impact of the cheque bebé on the completed fertility rate. It finds that the increase is only 3%, a much smaller figure.

In around the year 1980, the total fertility rate (TFR) in high-income countries fell below the replacement level of 2.1 children per woman. It has remained well below that level ever since. Spain enjoyed a baby boom in the 1960s and 1970s, but then experienced a fast decline in fertility rates. In the early 1990s, it became one of the first countries in the world to attain what demographers called lowest-low fertility: a TFR below 1.3 children per woman (Kohler, Billari, & Ortega, 2002). Other Southern European nations have fared similarly. Were it not for immigration, such low fertility rates would have certainly led to population decline.



 

The potential negative effects of these demographic pressures on the economy have motivated governments to introduce policies that incentivise people to have more children in countries such as Canada, Israel, Germany and South Korea. On 3 July 2007, the Spanish government announced the introduction of an incentive that the media dubbed the cheque bebé: a €2,500 payment to families upon the birth of a child. This payment was equivalent to around 5 times the gross minimum monthly wage, and twice the median gross monthly earnings of women at the time. The requirements to qualify to obtain the incentive were few, and take-up was nearly universal once it was implemented.

Numerous studies on the effects of different fertility incentives have found that the number of births increases shortly after their implementation. In the case of Spain’s cheque bebé, it was found that the number of births increased by around 6% at nine months after its introduction   (González, 2013; González & Trommlerová, 2023). These figures are in line with findings from other countries. However, the effects over longer time horizons are difficult to assess empirically for two reasons: firstly, tracking groups of women that are and are not affected by the policy over their fertile years is often not possible, and secondly, long-term fertility outcomes may be affected by many factors other than the policy. This is a problem, because ultimately population dynamics depend on the completed fertility rate, which is the number of children that a woman has had by the end of her fertile years. Therefore, policymakers should take the latter into account. This study highlights the fact that the effect of the incentives on completed fertility rates may be quite different than the effect on birth rates in the short run. This is because, while the effect in the short run depends on the responses of women of different ages when the policy is implemented, the effect on the completed fertility rate depends on the response of women who are eligible for the incentive throughout their lives.

In Spain, as in most other developed countries, fertility surveys find that women claim to want more children than the number they ultimately have had by the end of their fertile years: on average, women aged 40-44 years old in 2018 wanted to have 2.04 children but ultimately had only 1.54, according to the 2018 Spanish Encuesta de Fecundidad. This suggests that there is scope for pro-fertility policies to increase the completed fertility rate. Interestingly, nowadays, desired and actual fertility are not correlated with education and income as they were in the past: college and non-college-educated, rich and poor women desire and ultimately have similar numbers of children. To be specific, the reported desired number in 2018 was 2.08 for college- and 2.04 for non-college-educated women, while the actual numbers were 1.47 and 1.58, respectively. 


 

As women’s labour force participation has increased in recent decades, many of them have fewer children than they desire because combining a career with family responsibilities remains challenging. Economists have developed a methodology to measure child penalties in the labour market, i.e. negative consequences in labour-market outcomes experienced after the first childbirth. In Spain, ten years after having a child, women are 37.5% more likely to work part time and have earnings that are on average 33.4% lower (de Quinto, Hospido, & Sanz, 2021). This is similar to the situation observed in the United States, with a smaller child penalty compared to the United Kingdom and Germany, but larger compared to Denmark and Sweden (Kleven, Landais, Posch, Steinhauer, & Zweimüller, 2019).


 

This study assesses the effects of financial incentives to boost fertility, particularly those of the cheque bebé, via a model that simulates women’s labour force participation and fertility decisions throughout their life cycle. The parameters of the model are chosen so that the short-term response to the cheque bebé corresponds to the empirically estimated one. Moreover, the simulated women have similar labour force participation before and after having children and have preferences for children as described above. That is, the simulated women behave similarly to Spanish women before and after the introduction of the cheque bebé. The model is used to simulate the response of women that are given an incentive identical to the cheque bebé from the beginning of their fertile years until the end. The results show that fertility increases by 6% immediately after introduction of the incentive, but over the next 15 years, the positive effect diminishes until it reaches about 3%. This is because, while both younger and older women have additional children in the short term, in the long term the effect is concentrated only among younger women.


 

This study considers the long-term effects of financial incentives to boost fertility, in particular the 2007 Spanish policy known as the cheque bebé. Previous empirical work found that the incentive led to a 6% increase in the number of babies born within 9 months of its implementation. Using these results as an input, the study proposes a model of fertility and female labour force participation in which the simulated women behave like the real Spanish women in 2007. The model reveals that the effect of the incentive on fertility diminishes substantially over time, halving in value. This suggests that financial incentives alone are insufficient to induce large-scale and sustained fertility rate increases. Other policies aiming to improve family-work balance, reduce job instability, and provide consistent support throughout women’s life cycles should be carefully studied.

The study is based on a quantitative model that simulates the labour force participation and fertility decisions of women. For reasons of computational complexity, several simplifying assumptions had to be made, including taking marriage as a given, and ignoring the roles of divorce and household savings.

“This work was financially supported by the Spanish Ministry of Science, Innovation and Universities, Spain [grant numbers PID2024-159090NB-I00 and PID2019-107614GBI00]; the Catalan Research Agency [grant number 2021SGR00678]; and the European Union’s Horizon Europe Research and Innovation Programme under Grant Agreement number 101095175 (SUSTAINWELL project). Views and opinions expressed are, however, those of the author(s) only and do not necessarily reflect those of the European Union or UKRI. Neither the European Union nor UKRI can be held responsible for them.”

de Quinto, A., Hospido, L., & C. Sanz, C. (2021). The child penalty: evidence from Spain. SERIEs,12, 585–606.

González, L. (2013). The Effect of a Universal Child Benefit on Conceptions, Abortions, and Early Maternal Labor Supply. American Economic Journal: Economic Policy, 5(3), 160–88.

González, L., & Trommlerová, S. K. (2023). Cash Transfers and Fertility: How the Introduction and Cancellation of a Child Benefit Affected Births and Abortions. Journal of Human Resources, 58(3), 783-818.

Kleven, H., Landais, C., Posch, J., Steinhauer, A., & Zweimüller, J. (2019). Child Penalties across Countries: Evidence and Explanations. AEA Papers and Proceedings(109), 122–26.

Kohler, H.-P., Billari, F., & Ortega, J. (2002). The Emergence of Lowest-Low Fertility in Europe During the 1990s. Population and Development Review, 28, 641-680.