The Economics of the Family and Its Policy Implications: Why Should We Care About Fertility Outcomes?

This paper reviews potential explanations of the continued fertility decline in developed countries that are provided by the economic theory of the family and discusses their implications regarding the appropriateness of public interventions. Theoretical approaches covered are the quantity–quality interaction in parental fertility decisions; time-allocation models with rising opportunity costs of domestic child care; models of intra-household bargaining in which fertility choices affect bargaining positions of the partners involved; and models with intertemporal choices in which fiscal externalities of child-rearing activities arise from other public intervention into the field of intergenerational distribution. Based on these explanations, the reduction in average fertility may, to a considerable degree, reflect rational adaptations of (potential) parents to changes in their economic environment. At closer scrutiny, however, the second and third approach provide some justifications for government action to better frame the decisions taken at the micro level. The fourth approach definitely calls for corrective measures. The discussion also allows for some conclusions as to which broad categories of policy instruments might be needed in each case. JEL code: H31, H5; J1, J22