Can a looser fertility policy reduce consumption inequality? Evidence from China’s “universal two-child policy”

Abstract

This paper uses micro survey data from China Household Finance Survey (CHFS) 2011 to 2019 and the staggered DID approach to study the impact of the loose “universal two-child” policy on Chinese household consumption inequality. The results show that the implementation of the policy can significantly reduce the relative consumption deprivation of policy-responsive families, and the effect is more significant for relatively vulnerable households, for example, those located in rural areas or western regions, with “outside-the-system” jobs or low- to middle-income levels. Mechanistic analysis revealed that the differentiated effects of the policy on the consumption of households with different income strata contributed to the reduction in consumption inequality. Furthermore, the policy alleviates consumption inequality through its negative effect on luxury consumption and positive effects on subsistence and development consumption. The mitigating effect of the two-child policy on consumption inequality is robust according to various robustness tests. This study has implications and policy significance for the implementation of China’s current three-child policy and the adjustment of future fertility policies, as well as narrowing the gap between the rich and the poor and achieving the goals of common prosperity and equalization.