The impact and mechanism of the relaxation of fertility policy on income distribution: Evidence from China's Selective Two Children Policy

Qian Huang; Shoulin Fang; Dongmei Wang; Weiheng Sun; Youcheng Zhou; Feiling Lu

doi:10.58567/jea02010006

Authors

Qian Huang School of Economics, Nankai University, Tianjin, China
Shoulin Fang School of Economics, Nankai University, Tianjin, China
Dongmei Wang School of Economics, Hebei University, Baoding, China
Weiheng Sun Business School, Imperial College London, London, UK https://orcid.org/0009-0006-3102-412X
Youcheng Zhou Department of Accounting, Southampton Business School, University of Southampton, Southampton, UK https://orcid.org/0000-0003-1468-8208
Feiling Lu College of Letters & Science-Economics Dept, University of Wisconsin-Madison, Madison, USA https://orcid.org/0009-0009-8118-4502

DOI:

https://doi.org/10.58567/jea02010006

Keywords:

Selective two-child policy; Income distribution; Labor force participation, Income gap; Disposable income

Abstract

Numerous studies have explored the impact of family planning policies on income distribution, but the impact of policy relaxation remains largely unexplored. To address this gap, we investigate the effects of China's selective two-child policy, which was implemented in 2013, using provincial panel data from 2011 to 2016. Specifically, we employ a generalized difference-in-differences model to empirically analyze the impact and mechanism of the policy relaxation on residents' income distribution. Our findings are as follows. Firstly, the selective two-child policy has narrowed the income distribution gap. Secondly, male labor force participation, the urban-rural income gap, and disposable income serve as mechanisms through which the selective two-child policy affects income distribution. Thirdly, the robustness test confirms the robustness of our conclusions. Finally, we observe regional heterogeneity in the impact of the selective two-child policy on residents' income distribution. Specifically, the policy has had significant effects in the western and northeastern regions, but not in other regions. Overall, our results shed light on the impact of childbearing policies on income distribution, providing important insights for optimizing China's childbearing policies and promoting common prosperity.

References

Almond, D., Li, H., & Zhang, S. (2019). Land reform and sex selection in China. Journal of Political Economy, 127(2), 560-585. https://doi.org/10.1086/701030

Baker, S. R., Benmelech, E., Yang, Z., & Zhang, Q. (2022). Fertility and Savings: The effect of China’s two-child policy on household savings (No. w29856). National Bureau of Economic Research. https://doi.org/10.3386/w29856

Baron R M, Kenny D A. The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology, 1986, 51(6): 1173. https://doi.org/10.1037/0022-3514.51.6.1173

Boulier B L. The effects of demographic variables on income distribution. Univ., 1975. https://www.econbiz.de/Record/the-effects-of-demographic-variables-on-income-distribution-boulier-bryan/10000728011

Chen X, G. The effect of a fiscal squeeze on tax enforcement: Evidence from a natural experiment in China. Journal of Public Economics, 2017, 147: 62-76. https://doi.org/10.1016/j.jpubeco.2017.01.001

Chetty R, Looney A, Kroft K. Salience and taxation: Theory and evidence. American economic review, 2009, 99(4): 1145-1177. https://doi.org/10.1257/aer.99.4.1145

Chevan, A., & Stokes, R. (2000). Growth in family income inequality, 1970–1990: Industrial restructuring and demographic change. Demography, 37(3), 365-380. https://doi.org/10.2307/2648048

Chu C Y, Koo H W. intergenerational income-group mobility and differential fertility. American Economic Review, 1990, 80 (5) :1125-1138. https://doi.org/10.2307/2006765

Docquier, F., & Paddison, O. (2003). Social security benefit rules, growth and inequality. Journal of Macroeconomics, 25(1), 47-71. https://doi.org/10.1016/s0164-0704(03)00006-5

Fleisher, B. M., & Yang, D. T. (2006). Problems of china's rural labor markets and rural-urban migration. Chinese Economy, 39(3), 6-25. https://doi.org/10.2753/CES1097-1475390302

Jia, N., Zhou, Y., & Yang, T. (2021). “Selective two-child” policy and household resource allocation. China Economic Review, 68, 101639. https://doi.org/10.1016/j.chieco.2021.101639

Kumar, A., Jain, A. K., Aruldas, K., Mozumdar, A., Shukla, A., Acharya, R., ... & Saggurti, N. (2020). Is economic inequality in family planning in India associated with the private sector?. Journal of Biosocial Science, 52(2), 248-259. https://doi.org/10.1017/S0021932019000415

Kuznets S. Modern economic growth: findings and reflections. The American economic review, 1973, 63(3): 247-258. https://doi.org/10.2307/1914358

Kuznets, S. (1955). Economic growth and income inequality. The American economic review, 45(1), 1-28. http://www.jstor.org/stable/1914358 .

Lam D. The dynamics of population growth, differential fertility, and inequality. American Economic Review, 1986, 76 (5) :1103-1116. https://doi.org/10.2307/1816471

Morley S A. The effect of changes in the population on several measures of income distribution. The American Economic Review, 1981, 71(3): 285-294. https://doi.org/10.2307/1802779

Özdemir, O. (2022). The determinants of income distribution: the role of progress in human capital. Quality & Quantity, 1-35. https://doi.org/10.1007/s11135-022-01559-7

Porto, N., & Espinola, N. (2019). Labor income inequalities and tourism development in Argentina: A regional approach. Tourism Economics, 25(8), 1265-1285. https://doi.org/10.1177/1354816619828143

Ting W, M. Calculation of China's Gini Coefficient and Analysis of Its Changing Trend. Humanities Journal, 2012 (02): 56-61.https://doi.org/ 10.15895/j.cnki.rwzz.2012.02.022

Wei, W., Jiahao, Y., Kun, W., & Le, X. (2020). Influence of the two-child policy on household second child fertility and consumption: Investigation based on CFPS Data. Journal of Finance and Economics, 46(12), 79-93.https://doi.org/ 10.16538/j.cnki.jfe.20200918.403

Wu Q, Su Q. How does the family planning policy affect the urban-rural income gap - an empirical analysis based on CFPS data. Journal of Guizhou University of Finance and Economics, 2018 (04): 1-11.https://doi.org/2095－5960(2018)04－0001－11

Wu, X. (2022). Fertility and maternal labor supply: Evidence from the new two-child policies in urban China. Journal of Comparative Economics, 50(2), 584-598. https://doi.org/10.1016/j.jce.2022.01.002

Yang, X., & Huang, W. C. (2017). Human Capital Investment Inequality and Rural–Urban Income Gap: Evidence from China. Advances in Pacific Basin business economics and finance (Vol. 5, pp. 151-172). Emerald Publishing Limited. https://doi.org/10.1108/S2514-465020170000001007

Zeng, Y., & Hesketh, T. (2016). The effects of China's universal two-child policy. The Lancet, 388(10054), 1930-1938. https://doi.org/10.1016/S0140-6736(16)31405-2

Zhang, X., Guo, F., & Zhai, Z. (2019). China’s demographic future under the new two-child policy. Population Research and Policy Review, 38, 537-563. https://doi.org/10.1007/s11113-019-09519-0

Zhao T, Zhang Z, Liang S, K. Digital Economy, Entrepreneurship Activity and High Quality Development -- Empirical Evidence from Chinese Cities. Management World, 2020, 36 (10): 65-76. https://doi.org/10.19744/j.cnki.11-1235/f.2020.0154

Zheng, B. (2016). Population ageing and the impacts of the universal two-child policy on China’s socio-economy. Economic and Political Studies, 4(4), 434-453. https://doi.org/10.1080/20954816.2016.1251136

Zhou, Q., & Shi, W. (2022). How does town planning affect urban-rural income inequality: Evidence from China with simultaneous equation analysis. Landscape and Urban Planning, 221, 104380. https://doi.org/10.1016/j.landurbplan.2022.104380