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We study how fertility responds to labor market reforms and how such adjustments affect labor supply elasticities. First, we use longitudinal Danish register data and tax-reforms from 2009 to provide empirical evidence that increased marginal net-of-tax rates of women decrease fertility while increased marginal net-of-tax rates of men increase fertility. Second, we estimate a life-cycle model of family labor supply in which couples choose the timing and number of children that reproduces the empirical results. We use the estimated model to quantify how fertility adjustments affect labor supply responses to e.g. tax reforms. We find that especially women’s wage elasticity is greatly affected by being able to adjust fertility. Our results have implications for optimal policy and suggest that tax reforms can have permanent effects through fertility adjustments.
