Does the population planning policy in China affects fertility as the policymakers expected?

Abstract

China’s implementation of the One Child Policy created a setting where households were compelled to reduce family size. Traditional economic theory clearly predicts reductions in fertility will drive households to pursue greater human capital investments in their children. I use Chinese census data to test if the One Child Policy induced reductions in child bearing and subsequently changed households’ human capital investment choices. I leverage the historical time-varying, province level roll out of the One Child Policy in a generalized difference-in-differences framework to confirm the causal impact on child bearing. To investigate the fertility reduction’s effect on human capital investment, I use an instrumental variable identification strategy is used in conjunction with tax penalties associated with the policy. Results are precisely estimated and supportive that the reduction in child bearing lead to greater human capital investments.