Grandparental child care, child allowances, and fertility

Recent research on grandparenting reveals that it has a positive impact not only on parental child care but also on the grandparent’s welfare. In this study, we examine the effect of child allowances on fertility by assuming that fertility is a joint product of both parental and grandparental child care and that providing grandparental child care improves welfare. In doing so, we aim to establish a theoretical framework that more accurately predicts the impacts of child care policies than that which is currently utilized in the literature (empirical evidence for which has been inconclusive at best). We find that the fertility effect of child allowances critically depends on individual preferences and household production technology. In some cases, the fertility rate is monotonically decreasing or shaped like an inverted U with respect to the size of child allowances. We therefore conclude that small child allowances can increase fertility in situations where there is little initial parental child care. However, in situations where the initial rate of parental child care is relatively large, or where grandparental child care features as a key factor in household fertility production, child allowances can effectively reduce the fertility rate.