This study examines the effect of child allowances in Israel on fertility in the years 1994-2007, with special reference to the cuts in allowances in 2003. Based on the administrative database of the National Insurance Institute and the significant changes in the allowances, it was found that the effect differed among population subgroups. The average high-order child allowances increased the probability of a married Arab woman giving birth by about 6-7 percent, and of a married ultra-orthodox Jewish woman doing so by about 3 percent. The allowance had no effect on other Jewish or Druze women, bringing the effect on the total population down to less than 2 percent. Older women, those with many children, with a low family income or who grew up in large families generally reacted more strongly to changes in the level of child allowances, ceteris paribus.The study was carried out shortly after the cuts in child allowances, so it is unclear to what extent the resultant decrease in fertility will endure. Furthermore, the cuts took place close to turning points in the business cycle and to reductions in other social benefits, and the estimates may not fully reflect these factors.

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