War Debt and the Baby Boom

Zhao, Kai (2011): War Debt and the Baby Boom.

Abstract

In this paper, I argue that an important cause of the postwar baby boom in the US was the dramatic reduction in government debt (via income taxation) in the two decades following WWII. A reduction in government debt (via income taxation) increases fertility by changing the tax burden of different generations. A higher current income tax increases fertility by lowering after-tax wage and therefore the opportunity cost of child-rearing (when the cost of child-rearing involves parental time). A lower government debt level implies a lower tax burden on children in the future and thus a higher lifetime utility for them, which also increases current fertility if parents have Barro-Becker type preferences (the children's utility is included in the parents' utility function). The United States government accumulated a large amount of debt from WWII. The debt-GDP ratio peaked at 108% in 1946, and the debt level was reduced significantly (via taxation) in the following two decades. The debt-GDP ratio was only 35% in 1966. In a quantitative Barro-Becker model with government debt, I show that a reduction in government debt (financed by income taxation) such as the one experienced by the postwar US can generate a significant increase in fertility, which in magnitude accounts for 48% of the postwar baby boom in the US.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fertility, Baby boom, Government debt, WWII
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E0 - General; J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts

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