Can The Education Subsidy Reverse Falling Fertility in Taiwan

The concern over population decline has led Taiwan government to examine how and to what extent pronatalist policies could reverse the trend. The exclusive provision of the education subsidy to government employees allows us to examine whether the availability of the education subsidy explains differences in fertility behavior between public-sector and private-sector households. In 1996, the government permanently terminated inflation adjustment to the education subsidy, which created a quasi experiment ideal for policy evaluation. This paper applies the difference-in-difference approach and shows that the reform has reduced the probability of fertility for public-sector households by 17% relative to private-sector households. We next estimate the effects of the value of the education subsidy and personal tax exemption (PTE) on fertility. The probability elasticities of the education subsidy and PTE are 0.05 and 0.80, respectively. Decomposition suggests that without the subsidy and PTE the probability of fertility would have dropped additional 37% and 45% in 1977-1989 and 1990-2001, respectively.