The steep increase in payments of child allowances to households headed by citizens who did not serve in the Israel Defense Forces provides a quasi-natural experiment for testing the effect of economic incentives on fertility. The child allowance increased for some of the Druze and Bedouin populations and almost for all the Muslim population. This paper examines the change in the birthrate of women whose child allowances increased (i.e., women whose husbands did not serve in the army) as against that of similar women whose child allowances did not increase. We found that the increase in child allowances increased the completed fertility rate of Druze women but did not affect the fertility of Bedouin and Muslims.

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