The differential effects of childbearing on household economic decisions: The contrast between the first and second child

Abstract China progressively relaxed its one‐child policy since 2013, allowing families to legally have a second child. Using data from the China Family Panel Studies and applying a difference‐in‐differences event‐study approach, we find that the family size outcomes are nonlinear. We find the maternal labor force participation rate drops permanently after the second childbirth, but only temporarily after the first birth. The first child does not significantly worsen household finances by compressing non‐essential expenses, whereas the second child does worsen them due to the lack of room for further frugality. This suggests that fertility incentives, especially based on material factors, may be more efficient when the childbearing structure of families is considered.