Papagni, Erasmo (2008): The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving and Growth.
Download (271kB) | Preview
This paper investigates economic growth under liquidity constraints by taking into account the choices of fertility, human capital and saving. In a model of four overlapping generations, parents are altruistic towards their offspring and finance their education investment. The government provides education subsidies to young adult parents and levies taxes on income of the adult generation. Sensitivity analysis on borrowing limits and tax parameters highlights effects with opposite sign on the main endogenous variables at steady state. A lift in liquidity constraints decreases savings and capital accumulation and this effect is responsible for the ambiguous sign of comparative statics on the rate of fertility and on human capital investment. From model simulation, we derive an inverted U-shaped curve relating the borrowing limit with fertility, education and growth, meaning that financial reforms in the less developed countries have positive effects on the economy in the long-run, even if they raise fertility and reduce savings. Greater government subsidies to human capital investments and lower income taxes have positive effects on savings and fertility. The same parameters present ambiguous effects on education investments and growth. Numerical simulations show that a) human capital investment has an inverted U-shaped relation with income taxes and education subsidies ; b) economic growth decreases with greater income taxes and increases with higher education subsidies. Jel codes: O40, O16, J13, D91.
|Item Type:||MPRA Paper|
|Original Title:||The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving and Growth|
|Keywords:||Borrowing constraints, taxation, endogenous population, economic growth|
|Subjects:||J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility ; Family Planning ; Child Care ; Children ; Youth
D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
|Depositing User:||Erasmo Papagni|
|Date Deposited:||17. Jan 2009 09:44|
|Last Modified:||28. Dec 2015 00:30|
Andolfatto, D. and Gervais, M., 2006. Human capital investment and debt constraints. Review of Economic Dynamics 9, 22-67.
Apps, P., Rees, R., 2004. Fertility, Taxation and Family Policy. Scandinavian Journal of Economics 106 (4) , 745-763
Azariadis, C., Bullard, J., and Ohanian, L., 2001. Trend-reverting fluctuations in the life-cycle model. Journal of Economic Theory 119, 334-356.
Azariadis, C. and de la Croix, D., 2006. Financial Institutional Reform, Growth, and Equality, in: Eicher, T. E., and Garcia-Penalosa, C., (eds.), Institutions, Development, and Economic Growth, MIT Press, pp. 33-64.
Azariadis C., and Lambertini, L., 2003. Endogenous Debt Constraints in Lifecycle Economies, Review of Economic Studies 70, 461-487.
Becker, G. S., 1991. A Tretease on the Family, II ed..Cambridge, MA, Harvard University Press.
Becker, G. S., Murphy, K., Tamura, R., 1990. Human capital, fertility, and economic growth. Journal of Political Economy 98, S12-S37.
Behrman, J. R., Pollak, R. A., Taubman, P., 1989. Family resources, family size, and access to financing for college education. Journal of Political Economy 97, 398-419.
Boldrin, M., De Nardi, M., Jones, L. E., 2005. Fertility and social security. NBER, WP. N° 11146.
Buiter, W., Kletzer, K. M., 1995. Capital Mobility, Fiscal Policy, and Growth under Self-Financing of Human Capital Formation. The Canadian Journal of Economics 28, S163-S194.
Cigno, A., 1991. Economics of the Family. Oxford, Clarendon Press and Oxford University Press.
Cigno, A., Rosati, F. C., 1996. Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA. European Economic Review 40, 1561-1589.
Cox, D., Jappelli, T., 1990. Credit Rationing and Private Transfers: Evidence from Survey Data. The Review of Economics and Statistics 72, 445-454.
De Gregorio, J., 1996. Borrowing constraints, human capital accumulation, and growth. Journal of Monetary Economics 37, 49-71.
De Gregorio, J., Kim, S., 2000. Credit markets with differences in abilities: Education, distribution and growth, International Economic Review, 37, 579-607.
de la Croix, D., Doepke, M., 2004. Public versus private education when differential fertility matters. Journal of Development Economics 73, 607-629.
de la Croix, D. and Michel, P., 2002. A Theory of Economic Growth. Dynamics and Policy in Overlapping Generations. Cambridge University Press. Cambridge.
de la Croix, D. and Michel, P., 2007. Education and growth with endogenous debt constraints. Economic Theory 33, 509-530.
Ehrlich, I., Kim, J., 2007. Social security and demographic trends: Theory and evidence from the international experience. Review of Economic Dynamics 10, 55-77.
Galor, O. 2007, Discrete dynamical systems, Springer-Verlag, Berlin.
Galor, O., Weil, D. N., 1996. The gender gap, fertility, and growth. American Economic Review 86, 374-387.
Galor, O., Zang, H., 1997. Fertility, income distribution, and economic growth: Theory and cross-country evidence.
Japan and the World Economy 9, 197-229. Hanushek, E. A., 1992. The tradeoff between child quantity and quality. Journal of Political Economy 100, 84-117.
Haveman, R., Wolfe, B. L., 1995. The determinants of children's attainments: A Review of Methods and Findings. Journal of Economic Literature XXXIII, 1829-1878.
Jappelli, T., and Pagano, M., 1994. Saving, Growth, and Liquidity Constraints. Quarterly Journal of Economics 109, 83-109.
Jappelli, T., and Pagano, M., 1999. The welfare effects of liquidity constraints. Oxford Economic Papers 51, 410-430.
Kehoe, T., Levine, D., 1993. Debt-constrained asset markets. Review of Economic Studies 60, 35-52.
Loayza, N., Schmidt-Hebbel K., Serven, L., 2000. What drives private saving across the world? The Review of Economics and Statistics LXXXII, 165-181.
Lochner, L., Monge-Naranjo, A., 2002. Human capital formation with endogenous credit constraints, NBER, W.P. n°8815.
Papagni, E., (2006), Household borrowing constraints, fertility dynamics, and economic growth, Journal of Economic Dynamics and Control. 30, 27-54.
Parish, W. L., Willis, R. J., 1993. Daughters, education, and family budgets. The Journal of Human Resources 28, 863-898.
Pitt, M. M., Khandker, S. R., McKernan S., Latif, M. A., 1999. Credit Programs for the Poor and Reproductive Behavior in Low-Income Countries: Are the Reported Causal Relationships the Result of Heterogeneity Bias? Demography. 36, 1-21.
Schultz, T. P., 1997. Demand for children in low income countries. in M. R. Rosenzweig and O. Stark (eds.) Handbook of Population and Family Economics. Elsevier.
Willis, R. J., 1973. A new approach to the economic theory of fertility behavior. Journal of Political Economy, 81, S14-S64.
Zhang, J., Casagrande, R., 1998. Fertility, growth, and flat-rate taxation for education subsidies. Economics Letters 60, 209-216.