DECLINING FERTILITY AND THE RISING COST OF CHILDREN: What can NTA say about low fertility in Japan and other Asian countries?

Abstract

This paper examines, at the aggregate level, the relationship between cost of children and number of children (as measured by the total fertility rate) in Japan and other East Asian countries, using a new methodological approach called National Transfer Accounts (NTA). The private and public direct costs of children are measured by private and public transfers flowing into the ‘child’ age groups from older age groups. The estimated elasticity between cost and number of children is high, and the elasticity between the human capital component of the cost of children, i.e. education and health costs, and number of children is even higher. This is consistent with the widely held view that in the highly success-oriented societies of East Asia, human capital is a very important factor in parents’ family-size decisions. The estimated elasticities are measures of the trade-off between quality and quantity of children.