Comparing Three Fertility-Promoting Policies under Household Heterogeneity, Redistribution and General Equilibrium Effects

We construct a dynamic general equilibrium model to assess the effects of three standard fertility-promoting policies: (i) transfer payment, (ii) paid maternity leave, and (iii) public childcare service. The evaluation is based on fertility promotion and welfare loss. To introduce heterogeneity, we categorize households into two types: the first type prefers having more children and has a lower productivity, and the second type prioritizes consumption and has a higher productivity. Simulation results indicate that transfer payment is the most effective policy for the first type, as it provides the highest redistribution ratio. Public childcare service is the most effective policy for the second type, as it reduces time costs while providing additional income to satisfy their higher preference for consumption. Heterogeneity, redistribution, and general equilibrium effects are the primary factors influencing policy outcomes. Heterogeneity causes the decisions of the two household types to interact, altering convergence paths and extending the time required for convergence. Moreover, heterogeneity is a critical factor making public childcare service more beneficial for the second type. Redistribution consistently benefits the first type more under any policy, particularly under the transfer payment. General equilibrium effects slightly weaken the fertility-promoting impact of policies and increase welfare losses, a conclusion that holds uniformly across all policies and households.