Cost or Raising Children, Child Poverty and Fertility Decisions

This study estimates the cost of raising children, which we also term the ‘‘price’’ of children, in the context of the collective theory of the household following Lazear and Michael’s (1988) method, not yet applied in the literature. Determination of the price of a child requires knowledge of the rule that governs how resources are allocated within the family, that is how much is spent for adults and how much for children. Though our estimate of that cost does not include an evaluation of parental time invested in one’s offspring, we investigate the relationship between the cost of raising children and procreative choices and, thanks to the possibility of deriving individual welfare functions for each household component, child poverty. On average, the price of a child amounts to 60 percent of the cost of an adult. Further, we find that the cost of raising a child depends on household income and decreases with family size. As expected, it significantly and negatively affects the likelihood of having children. Child poverty levels, as directly inferred from children’s welfare, are considerably higher than that derived from conventional measures.