Abstract: This paper develops a theory of fertility choice with loss aversion over consumption. Because children compete with consumption for household resources, loss-averse households cut fertility aggressively to protect living standards when adverse shocks push consumption below reference levels, but respond modestly to positive shocks. Cross-country panel data and quasi-experimental evidence support the model's predictions. A calibrated version attributes a substantial share of China's recent fertility decline to slowing income growth activating loss aversion. The findings suggest that pro-natalist policies are more effective during downturns, temporary subsidies may backfire upon withdrawal, and pro-fertility regimes should target higher fertility under income uncertainty.

Abstract:   Under what conditions can globalization become a source of state fragility? We provide the first systematic evidence that rigid trade and taxation systems, together with the collapse in global silver production following the Spanish American wars of independence, fueled rising silver prices and social instability in early nineteenth-century Qing China. Using newly assembled county-level panel data and historical commercial routes, we show that regions farther from Canton—the empire’s sole legal international port—experienced larger increases in silver prices and greater social unrest following the shock. Silver-denominated taxation was central to this relationship: because taxes were largely fixed in silver terms, rising silver prices sharply increased real tax burdens and fueled instability. Quantitatively, the silver shock reduced China’s aggregate welfare by 1.16%, with fiscal rigidity accounting for most of the loss. Opening additional international ports would have mitigated the destabilizing effects of the shock, but only modestly. By contrast, fiscal reform would have been far more effective.