Endogenous fertility, endogenous lifetime and economic growth: the role of child policies

Fanti, Luciano and Gori, Luca (2013): Endogenous fertility, endogenous lifetime and economic growth: the role of child policies.

Abstract

We examine the effects of child policies on both transitional dynamics and long-term demo-economic outcomes in an overlapping-generations neoclassical growth model à la Chakraborty (2004) extended with endogenous fertility under the assumption of weak altruism towards children. The government invests in public health, and an individual’s survival probability at the end of youth depends on health expenditure. We show that multiple development regimes can exist. However, poverty or prosperity do not necessarily depend on the initial conditions, since they are the result of how child policy is designed. A child tax for example can be used effectively to enable those economies that were entrapped in poverty to prosper. There is also a long-term welfare-maximising level of the child tax. We show that, a child tax can be used to increase capital accumulation, escape from poverty and maximise long-term welfare also when (i) a public pay-as-you-go pension system is in place, (ii) the government issues an amount of public debt. Interestingly, there also exists a couple child tax-health tax that can be used to find the second-best optimum optimorum. In addition, we show that results are robust to the inclusion of decisions regarding the child quantity-quality trade off under the assumption of impure altruism. In particular, there exists a threshold value of the child tax below (resp. above) which child quality spending is unaffordable (resp. affordable) and different scenarios are in existence.

• Item Type: MPRA Paper
• Language: English
• Keywords: Child policy; Endogenous fertility; Health; Life expectancy; OLG model
• Subjects: I - Health, Education, and Welfare > I1 - Health; J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility ; Family Planning ; Child Care ; Children ; Youth; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Abel AB (1985) Precautionary saving and accidental bequests. Am Econ Rev 75(4):777–791

Abio G, Mahieu G, Patxot C (2004) On the optimality of PAYG pension systems in an endogenous fertility setting. J Pension Econ Finance 3(1):35–62

Acemoglu D, Johnson S (2007) Disease and development: the effect of life expectancy on economic growth. J Polit Econ 115(6):925–985

Andreoni J (1989) Giving with impure altruism: applications to charity and Ricardian equivalence. J Polit Econ 97(6):1447–1458

Apps P, Rees R (2004) Fertility, taxation and family policy. Scand J Econ 106(4):745–763

Azariadis C, Drazen A (1990) Threshold externalities in economic development. Q J Econ 105(2):501–526

Barro RJ, Becker GS (1989) Fertility choice in a model of economic growth. Econometrica 57(2):481–501

Becker GS (1960) An economic analysis of fertility. In: Demographic and Economic Change in Developing Countries, National Bureau Committee for Economic Research, ed. Princeton, NJ: Princeton University Press

Becker GS Barro RJ (1988) A reformulation of the economic theory of fertility. Q J Econ 103(1):1–25

Becker GS, Murphy KM, Tamura R (1990) Human capital, fertility and economic growth. J Polit Econ 98(5):S12–S37

Bental B (1989) The old age security hypothesis and optimal population growth. J Popul Econ 1(4):285–301

Bhattacharya J, Qiao X (2007) Public and private expenditures on health in a growth model. J Econ Dyn Control 31(8):2519–2535

Boldrin M, Jones LE (2002) Mortality, fertility, and saving in a Malthusian economy. Rev Econ Dyn 5(4):775–814

Blackburn K, Cipriani GP (1998) Endogenous fertility, mortality and growth. J Popul Econ 11(4):517–534

Blackburn K, Cipriani GP (2002) A model of longevity, fertility and growth. J Econ Dyn Control 26(2):187–204

Bunzel H, Qiao X (2005) Endogenous lifetime and economic growth revisited. Econ Bull 15(8):1–8

Cervellati M, Sunde U (2005) Human capital, life expectancy, and the process of development. Am Econ Rev 95(5):1653–1672

Cervellati M, Sunde U (2011) Life expectancy and economic growth: the role of the demographic transition. J Econ Growth 16(2):99–133

Chakraborty S (2004) Endogenous lifetime and economic growth. J Econ Theory 116(1):119–137

Chakraborty S, Das M (2005) Mortality, human capital and persistent inequality. J Econ Growth 10(2):159–192

Chakraborty S, Papageorgiou C, Pérez Sebastián F (2010) Diseases, infection dynamics, and development. J Monet Econ 57(7):859–872

Chen HJ (2010) Life expectancy, fertility, and educational investment. J Popul Econ 23(1):37–56

Cigno A (1992) Children and pensions. J Popul Econ 5(3):175–183

Cigno A (1993) Intergenerational transfers without altruism: family, market and state. Europ J Polit Econ 9(4):505–518

Cigno A (1995) Public pensions with endogenous fertility: comment on Nishimura and Zhang. J Public Econ 57(1):169–173

Cigno (1998) Fertility decisions when infant survival is endogenous. J Popul Econ 11(1):21–28

Cigno A (2010) How to avoid a pension crisis: a question of intelligent system design. CESifo Econ Stud 56(1):21–37

Cigno A, Rosati FC (1992) The effects of financial markets and social security on saving and fertility behaviour in Italy. J Popul Econ 5(4):319–341

Cigno A, Werding M (2007) Children and Pensions. Cambridge, MA: MIT Press

Coale AJ (1981) Population trends, population policy, and population studies in China. Popul Dev Rev 7(1):85–97

Corneo G, Marquardt M (2000) Public pensions, unemployment insurance, and growth. J Public Econ 75(2):293–311

de la Croix D, Licandro O (1999) Life expectancy and endogenous growth. Econ Lett 65(2):255–263

de la Croix D, Michel P (2002) A Theory of Economic Growth. Dynamics and Policy in Overlapping Generations. Cambridge University Press, Cambridge

de la Croix D, Ponthière G (2010) On the Golden Rule of capital accumulation under endogenous longevity. Math Soc Sciences 59(2):227–238

de la Croix D, Pestieau P, Ponthière G (2012) How powerful is demography? The serendipity theorem revisited. J Popul Econ 25(3):899–922

Diamond PA (1965) National debt in a neoclassical growth model. Am Econ Rev 55(5):1126–1150

Eckstein Z, Wolpin KI (1985) Endogenous fertility and optimal population size. J Public Econ 27(1):93–106

Eckstein Z, Stern S, Wolpin KI (1988) Fertility choice, land, and the Malthusian hypothesis. Int Econ Rev 29(2):353–361

Egger G (2009) Health, “illth,” and economic growth: medicine, environment, and economics at the crossroads. Am J Prevent Med 37(1):78–83

Ehrlich I (2000) Uncertain lifetime, life protection, and the value of life saving. J Health Econ 19(3):341–367

Ehrlich I, Lui FT (1991) Intergenerational trade, longevity, and economic growth. J Polit Econ 99(5):1029–1060

Fanti L, Gori L (2009) Population and neoclassical economic growth: a new child policy perspective. Econ Lett 104(1):27–30

Fanti L, Gori L (2012a) Endogenous lifetime in an overlapping-generations small open economy. FinanzArch/Public Finance Anal 68(2):1–32

Fanti L, Gori L (2012b) Fertility and PAYG pensions in the overlapping generations model. J Popul Econ 25(3):955–961

Fanti L, Gori L (2012c) PAYG pensions, tax-cum-subsidy and A-Pareto efficiency. Res Econ 66(1):65–71

Fanti L, Gori L (2013) Fertility-related pensions and cyclical instability. J Popul Econ, forthcoming

Feldstein M (2005) Structural reform of social security. J Econ Perspect 19(2):33–55

Fenge R, Meier V (2005) Pensions and fertility incentives. Can J Econ 38(1):28–48

Fenge R, Meier V (2009) Are family allowances and fertility-related pensions perfect substitutes? Int Tax Public Finance 16(2):137–163

Fenge R, von Weizsäcker J (2010) Mixing Bismarck and child pension systems: an optimum taxation approach. J Popul Econ 23(2):805–823

Fioroni T (2010) Child mortality and fertility: public vs private education. J Popul Econ 23(1):73–97

Fogel RW (2004) The Escape from Hunger and Premature Death. New York NY: Cambridge University Press

Galor O (2005) From stagnation to growth: unified growth theory. In Aghion P, Durlauf S (Eds.), Handbook of Economic Growth. Amsterdam: Elsevier 1(4):171–293

Galor O, Weil DN (1996) The gender gap, fertility, and growth. Am Econ Rev 86(3):374–387

Galor O, Weil DN (1999) From Malthusian stagnation to modern growth. Am Econ Rev 89(2):150–154

Galor O, Weil DN (2000) Population, technology, and growth: from Malthusian stagnation to the Demographic Transition and beyond. Am Econ Rev 90(4):806–828

Gollin D (2002) Getting income shares right. J Polit Econ 110(2):458–474

Golosov M, Jones LE, Tertilt M (2007). Efficiency with endogenous population growth. Econometrica 75(4):1039–1071

Groezen B van, Meijdam L (2008) Growing old and staying young: population policy in an ageing closed economy. J Popul Econ 21(3):573–588

Groezen B van, Leers T, Meijdam L (2003) Social security and endogenous fertility: pensions and child allowances as siamese twins. J Public Econ 87(2):233–251

Hirazawa M, Yakita A (2009) Fertility, child care outside the home, and pay-as-you-go social security. J Popul Econ 22(3):565–583

Hirazawa M, Kitaura K, Yakita A (2010) Aging, fertility, social security and political equilibrium. J Popul Econ 23(2):559–569

Jaeger K, Kuhle W (2009) The optimum growth rate for population reconsidered. J Popul Econ 22(1):23–41

Kalemli-Ozcan S (2002) Does the mortality decline promote economic growth? J Econ Growth 7(4):411–439

Kalemli-Ozcan S (2008) The uncertain lifetime and the timing of human capital investment. J Popul Econ 21(3):557–572

Kalemli-Ozcan S (2012) AIDS, “reversal” of the demographic transition and economic development: evidence from Africa. J Popul Econ (2012) 25(3):871–897

Kalemli-Ozcan S, Turan B (2011) HIV and fertility revisited. J Dev Econ 96(1):61–65

Kalemli-Ozcan S, Ryder HE, Weil DN (2000) Mortality decline, human capital investment, and economic growth. J Dev Econ 62(1):1–23

Kalwij A (2010) The impact of family policy expenditure on fertility in western Europe. Demography 47(2):503–519

Leung MCM, Wang Y (2010) Endogenous health care, life expectancy and economic growth. Pacific Econ Rev 15(1):11–31

Livi-Bacci M (2006) A Concise History of World Population, Forth Edition. Malden MA, Wiley-Blackwell

Lorentzen P, McMillan J, Wacziarg R (2008) Death and development. J Econ Growth 13(2):81–124

McElroy M, Yang DT (2000) Carrots and sticks: fertility effects of China’s population policies. Am Econ Rev 90(2):389–392

Momota M (2000) The gender gap, fertility, subsidies and growth. Econ Lett 69(3):401–405

Nishimura K, Zhang J (1992) Pay-as-you-go public pensions with endogenous fertility. J Public Econ 48(2):239–258

Pestieau P, Ponthière G, Sato M (2008) Longevity, health spending and pay-as-you-go pensions. FinanzArch/Public Finance Anal 64(1):1–18

Peters W (1995) Public pensions, family allowances and endogenous demographic change. J Popul Econ 8(2):161–183

Rosenzweig M, Zhang J (2009) Do population control policies induce more human capital investment? Twins, birthweight, and China’s “One Child” policy. Rev Econ Stud 76(3):1149–1174

Samuelson P (1975) The optimum growth rate for population. Int Econ Rev 16(3):531–538

Soares RR (2005) Mortality reductions, educational attainment, and fertility choice. Am Econ Rev 95(3):580–601

Spataro L, Fanti L (2011) The optimal level of debt in an OLG model with endogenous fertility. Ger Econ Rev 12(3):351–369

Strauss J, Thomas D (1998) Health, nutrition and economic development. J Econ Lit 36(2):766–817

Strulik K (2004a) Economic growth and stagnation with endogenous health and fertility. J Popul Econ 17(3):433–453

Strulik K (2004b) Child mortality, child labour and economic development. Econ J 114(497):547–568

Varvarigos D, Zakaria IZ (2013) Endogenous fertility in a growth model with public and private health expenditures. J Popul Econ 26(1):67–85

Wigger BU (1999) Pay-as-you-go financed public pensions in a model of endogenous growth and fertility. J Popul Econ 12(4):625–640

World Health Statistics (2010) Part II. Global Health Indicators, France

Wu X, Li L (2012) Family size and maternal health: evidence from the One-Child policy in China. J Popul Econ 25(4):1341–1364

Yakita A (2001) Uncertain lifetime, fertility and social security. J Popul Econ 14(4):635–640

Young A (2005) The gift of the dying: the tragedy of AIDS and the welfare of future African generations. Q J Econ 120(2):423–466

Zhang J, Zhang J (1998) Social security, intergenerational transfers, and endogenous growth. Can J Econ 31(5):1225–1241

Zhang J, Zhang J, Lee R (2001) Mortality decline and long-run economic growth. J Public Econ 80(3):485–507