The Hidden Cost of Having More Children: The Impact of Fertility on the Elderly's Healthcare Utilization

Abstract

Declining fertility and increasing health expenditure associated with aging populations pose great challenges to public finance globally. This paper studies the hidden cost of fertility by analyzing the causal effect of fertility on the elderly’s healthcare utilization. We use the instrumental variable approach to account for the potential endogeneity in the fertility choice, exploiting the exogenous variations in fertility induced by the “1.5-Child Policy” in rural China. We find that having more children increases the probability and out-of-pocket expenditures of using formal and informal healthcare. Increased healthcare use can be driven by deteriorating physical and mental health and increasing intergenerational support. Children of the elderly are more likely to help them pay health costs and make monetary transfers to their parents, suggesting that the increased burden of healthcare cost is partly borne by the children. Women and lower educated parents who have limited economic resources and less generous health insurance tend to bear a higher increase in health costs with more children. The results imply that the true cost of birth-encouraging policies can be underestimated if the effect of fertility on healthcare utilization is overlooked, and such policies might increase inequality if no supportive measures are provided to disadvantaged groups.

Publication
RIETI Discussion Paper Series