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Children as Income Produting Assets: The Case of Teen Illegitimacy and Government Transfers

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  • Clarke, G.R.G.
  • Strauss, R.P.

Abstract

This paper develops a classical model of the teen fertility decision in the presence of public income transfers. The theoretical model predicts that welfare payments will encourage fertility, holding constant other economic opportunities, and that better economic opportunities will discourage fertility. Considering the possible simultaneity of illegitimacy rates and benefit levels, due to the collective choice process, we confirm the theoretical model's predictions with state‐level data from 1980 through 1990. We find that including fixed effects in the regression to control for unobserved differences between states does not sufficiently control for endogeneity. After controlling for endogeneity, real welfare benefits are strongly and robustly related to teen illegitimacy. The point estimates of the elasticity with respect to changes in the illegitimacy rate are around +1.3 for white teens and +2.1 for black teens. Real wages for women with a high school education or less are negatively related to teen illegitimacy for white teens, with an elasticity of around ‐0.4. Finally, male wages appear to have little effect on the illegitimacy rate for white teens but appear negatively correlated with the illegitimacy rate for black teens in some model specifications.
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  • Clarke, G.R.G. & Strauss, R.P., 1994. "Children as Income Produting Assets: The Case of Teen Illegitimacy and Government Transfers," RCER Working Papers 389, University of Rochester - Center for Economic Research (RCER).
    • Handle: RePEc:roc:rocher:389
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    1. Christopher A. Jepsen & Lisa K. Jepsen, 2006. "The Effects Of Statutory Rape Laws On Nonmarital Teenage Childbearing," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 35-51, January.
    2. Lisa Farrell & Paul Frijters, 2008. "Choosing to become a 'lost cause': the perverse effects of benefit preconditions," Oxford Economic Papers, Oxford University Press, vol. 60(1), pages 1-19, January.
    3. Wolfe, Barbara & Wilson, Kathryn & Haveman, Robert, 2001. "The role of economic incentives in teenage nonmarital childbearing choices," Journal of Public Economics, Elsevier, vol. 81(3), pages 473-511, September.
    4. D. Mark Anderson & Claus C. Pörtner, 2014. "High School Dropouts and Sexually Transmitted Infections," Southern Economic Journal, John Wiley & Sons, vol. 81(1), pages 113-134, July.
    5. R. Haveman & B. Wolfe & K. Wilson & E. Peterson, "undated". "Do Teens Make Rational Choices? The Case of Teen Nonmarital Childbearing," Institute for Research on Poverty Discussion Papers 1137-97, University of Wisconsin Institute for Research on Poverty.
    6. Thomas J. Nechyba, 2001. "Social Approval, Values, and AFDC: A Reexamination of the Illegitimacy Debate," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 637-666, June.
    7. Schaefer, Kurt C. & Hamersma, Sarah E. & Vander Veen, Thomas D., 2002. "AFDC and births to unwed women," Labour Economics, Elsevier, vol. 9(6), pages 801-813, December.

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