Less Is More: The Effects of Children on Income, Assets and Intergenerational Transfers

This dissertation examines whether having more children improves economic conditions of Chinese parents 45 years and older. This question matters for the economic well-being of millions of Chinese senior citizens and old age support policies. Previous research has not determined how the number of children (NoC) affected parents' long-term income and assets and none examined its impact on income, assets and transfers combined. In addition, most studies have not addressed the endogeneity issue by not controlling for some parental characteristics affect both the NoC and economic resources. Economic theories of fertility identify altruism and preferences as factors affecting fertility and long-term family economic situations. However, most previous studies have not controlled for characteristics including altruism and preferences.The present study is the first to establish a causal relationship between the NoC and three major sources of retirement economic resources—income, assets, and intergenerational transfers. It addressed endogeneity using a more exogenous and comprehensive measure of exposure to the family plan policies (FPPs) as the instrumental variable (IV) for the NoC. Various FPP rules were introduced at different years across villages in a manner that was credibly exogenous, which made FPPs good IVs. The study analyzed the research questions using the 2011 China Health and Retirement Longitudinal Study (CHARLS), a nationally representative sample of households with a member 45 and over.The IV estimates indicate that it is advantageous to have fewer children in a long-term economic perspective. On average, each additional child reduced incomes for rural and urban parents by 77% and 90%, respectively, and reduced assets by 147% and 41%, respectively. Although with each additional child, intergenerational transfers from children increased by 200% and 212% for rural and urban parents. Due to the much smaller absolute size of intergenerational transfers compared to income and assets, having each additional child led to an average reduction in total economic resources (income, assets, and transfers) of ¥8,971 and ¥27,960 for rural and urban parents, respectively. In addition, comparing the OLS and IV estimates suggests there would be substantial bias had I not addressed endogeneity.The findings suggest that past one-child policy was pro-growth by reducing family sizes and that the current phasing out of the one-child policy may worsen economic prospects for parents who have more children. Moreover, government support through pension, work-family, and pro-natalist policies may need to be strengthened.

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