How Do House Prices and Financial Expenditure Affect Birth Rate? New Evidence from the Dynamic Threshold Panel Model

Abstract

Owing to low birth rate, the demographic dividend in China is disappearing. It is thus of great significance to study the regional differences and influencing factors of the birth rate, further proposing political advices on how to raise birth rate. In this study, 31 administrative units in China were chosen as the regional targets, and the nonlinear effects of house prices and financial expenditure on birth rate were extensively investigated by using a dynamic panel threshold model. A dynamic panel threshold model with disposable income as threshold variable, house price as independent variable, financial expenditure that concluding education funds and social security as variables influenced by threshold variable was established, which can effectively handle regional heterogeneity and endogeneity problems. The results show that the effect of financial expenditure on birth rate is complex, exhibiting a “S” shape for education funds and an inverted “U” shape for social security. Previous controversial conclusions on the impact of financial expenditure on birth rate in the literature can thereby be reasonably explained. It shows that birth rate is influenced by the lagged birth rate and house prices have negative effects on birth rate. The rationality of the present results has been verified by using consumption and input-output economic theories. Based on the empirical investigation, specific suggestions have been proposed in order to acquire sustainable development of population.