The effect of child allowances on female labour supply: evidence from Israel

Abstract

AbstractThis study estimates the effect of the sharp reduction in Israel's child allowances in the early 2000s on female labour supply. The study uses the difference‐in‐differences method to estimate changes in the labour supply of Israeli women with more children (four or five) compared to changes in the labour supply of women with fewer children (two or three). The results show an increase of approximately 3.1 percentage points (4.4%) in the labour supply of women with four or five children, relative to that of women with two or three children. These numbers translate to an income elasticity of labour supply in the range −0.50 to −0.81. Finally, we document the heterogeneity of these effects and provide several tests of their validity.