Family planning and fertility inequality: Evidence from the abolition of China's one‐child policy

• Published date: 01 March 2024
• Author: Nana Chen,Hangtian Xu,Yang Xu
• Date: 01 March 2024
• DOI: http://doi.org/10.1111/asej.12319

ORIGINAL ARTICLE

Family planning and fertility inequality: Evidence from the

abolition of China’s one-child policy

Nana Chen

1

| Hangtian Xu

1

| Yang Xu

2

1

School of Economics and Trade, Hunan University, Changsha, China

2

School of Economics and Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, China

Correspondence

Hangtian Xu, School of Economics and Trade, Hunan University, Changsha, Hunan Province, China.

Email: hangtianxu@gmail.com

Funding information

National Natural Science Foundation of China, Grant/Award Number: 72173037; Ministry of Education of

China, Grant/Award Number: 21YJC790133

Abstract

This study takes China’s one-child policy (OCP)—a widely known policy intervention for

family planning—as an example to illustrate that an income-based penalty scheme for

above-quota births may cause fertility inequality. A couple can legally have only one

child under the OCP, and those who exceed the quota are subject to fines. To ensure that

this penalty scheme does not biasedly affect only low-income people who are relatively

more sensitive to fines of a certain amount, it was designed to be income-based, which

makes the perceived cost of the rich equal to that of the poor. However, we find that due

to the limited liability nature of the financial penalty, it unintentionally created fertility

inequality that favors the poor. Relying on city-year-level panel data, we find that this

mechanism partly explains the lower birth rates in rich cities in the OCP era; the gap nar-

rowed rapidly after the OCP abolition.

KEYWORDS

fertility restrictions, income-based penalty scheme, one-child policy, two-child policy

JEL CLASSIFICATION

J13, J18, K42

1|INTRODUCTION

Fertility behaviors are being intervened in many countries. Some low-fertility

economies (mainly developed countries) aim to increase fertility through

DOI: 10.1111/asej.12319

© 2024 East Asian Economic Association and John Wiley & Sons Australia, Ltd.

Received: 17 August 2023; Accepted: 8 February 2024

86 Asian Econ. J. 2024;38:86–117.

wileyonlinelibrary.com/journal/asej

incentives, whereas other high-fertility economies (mainly developing countries)

are committed to restraining population growth through antinatalist policies.

For the latter, it is common for the government to legally limit the number of

children each couple can have. For births that exceed this limit, a fine of a cer-

tain amount is imposed. Charging every offending couple the same fine is

regressive. A high-income couple is more likely to pay to have an above-quota

child than a low-income couple (we assume that their subjective preferences for

having this child are the same in the absence of fine) because of a greater afford-

ability. For instance, a fine of $20 000 does not deter above-quota births by a

multimillionaire, but it could devastate the income of a poor family for years.

Therefore, fines should be relatively heavier for rich families so that the per-

ceived cost of above-quota births is similar across families with different income

levels. More intuitively, such an income-based punishment is equivalent to set-

ting a higher price of violation for the rich because they have a lower elasticity.

1

This policy consideration is followed by China’s one-child policy (OCP),

which allows only one in-quota child for most couples, and imposes fines on

number of children exceeding the quota. The amount of financial penalty for an

above-quota child is proportional to the average household income in the city

where the couple’sHukou (China’s resident registration system) is located. Note

that income at the household level are not easily accessible in China; therefore,

the severity of fines is usually proportional to the average per capita disposable

income of the city.

However, does this income-based penalty scheme ensure that the enforce-

ment of fertility restrictions is fair across rich and poor families? First, the

enforcement of regulations is complex, and, to a large extent, it determines

the effects of the policy (Fenn & Veljanovski, 1988). Therefore, instead of

implicitly assuming that the OCP is self-enforcing and that there is full compli-

ance, the nature of enforcement and violation must be considered when evaluat-

ing policy outcomes. Second, this income-based penalty scheme assumes that

the willingness to pay for an above-quota child (or the net value of having this

child) increases linearly with income. In other words, it assumes that if a

family’s income doubles, the maximum amount they are willing to pay in fines

also doubles. However, this does not appear to be true, because the net value of

an above-quota child may increase but is concave in income (Li &

Zhang, 2003). Taking these two factors into consideration, this study examines

1

This situation also exists in the setting of speeding fines for drivers. According to a survey by an insurance

company, Fahey (2015) found that wealthy drivers in the US are more likely to speed and get more tickets,

because the amounts of fines for traffic violations is not income based, which suggests that this is partly because

they are less sensitive to the small fines and the ensuing rise in insurance premiums. Along the same lines, focusing

on the trade-off between travel time and the risk of receiving a penalty for exceeding the speed limit, Fosgerau

(2005) found driving speed to be positively associated with driver’s income. To eliminate this disparity in

affordability and the propensity for violation, some countries such as Finland, France, Germany, and Switzerland

implement an income-based speeding fine system, which charges wealthy speeders more so that the rich will feel

the pain of traffic tickets to the same extent as the poor (Frank, 2010).

ASIAN ECONOMIC JOURNAL 87

whether China’s penalty scheme for above-quota births under the OCP has

potentially created fertility inequality across the rich and poor.

We start our analysis with stylized facts describing the dynamics of birth

rates across 261 prefecture-level (or above) cities in China. Rich cities tended to

show lower birth rates in the OCP era, however with the relaxation of this fertil-

ity restriction (i.e., the gradual introduction of the two-child policy [TCP] from

2012 to 2015, allowing all couples to have two in-quota children), this negative

relationship between income and birth rate has been weakening. To explain this

phenomenon, we introduce a conceptual model that describes fertility choices

under heterogeneous compliance with the OCP. We assume that an above-quota

birth is subject to a mandatory fine, which is proportional to the local house-

holds’average income levels. When the fine exceeds the total value of a family’s

cash and goods, the excess is not levied. Thus, only families whose total income

of multiple years exceeds the fine can pay the fine in full (i.e., the liability of the

financial punishment is limited). In addition, the net value of an above-quota

child to a couple is increasing and concave in the couple’s total income. Couples

can, therefore, maximize their utility by having an above-quota child and paying

the fine, if the net value of the child is greater than the fine levied. Otherwise,

the couple’s optimal strategy is to abide by the OCP.

Our model predicts that rich cities have lower birth rates under the OCP,

because high-income couples are more likely to comply with the policy. In other

words, the rate of compliance with the fertility policy (hereinafter,

FPComplianceRate), or the proportion of in-quota newborns to total newborns,

is larger in rich cities. We then formally test two hypotheses to determine which

income-related urban characteristics underlie this income—birth rate relation-

ship. After the implementation of the TCP, we expect that the realization of

reproductive intentions in rich cities has increased relatively more than other cit-

ies; birth rates in other cities have increased relatively less because the imple-

mentation of the previous OCP was less effective (Hypothesis I). At the same

time, we expect that the FPComplianceRate has increased more in low-income

cities because more newborns who should have been counted as above-quota

births under the OCP are now recognized as in-quota births (Hypothesis II).

This is because the OCP-related penalties are based on average household

income.

Note that when the OCP was in force, it was difficult to distinguish the

mechanism we propose from alternatives, such as the quantity-quality trade-off

(investments in the quality of the child’s life rather than the number of children),

because they are all related to local economic fundamentals.

2

The abolition of

the OCP provides us with an opportunity to identify the effects of the OCP on

fertility inequality, referring to the relative tightness of fertility restrictions

2

See for more details in, e.g., Becker (1960), Galor and Weil (2000), Iyigun (2000), Rosenzweig and Zhang (2009),

Fernihough (2017), and Zhang (2017).

88 CHEN ET AL.