Status Externalities in Education and Low Birth Rates in Korea

77 Pages Posted: 16 Jun 2021 Last revised: 30 Apr 2023

See all articles by Seongeun Kim

Seongeun Kim

Sejong University

Michèle Tertilt

University of Mannheim - Department of Economics

Minchul Yum

University of Southampton; CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2023

Abstract

East Asians, especially South Koreans, appear to be preoccupied with their offspring's education---most children spend time in expensive private institutes and in cram schools in the evenings and on weekends. At the same time, South Korea currently has the lowest total fertility rate in the world. Motivated by novel empirical evidence on spillovers in private education spending, we propose a theory with status externalities and endogenous fertility that connects these two facts. Using a quantitative heterogeneous-agent model calibrated to Korea, we find that fertility would be 28\% higher in the absence of the status externality and that childlessness in the poorest quintile would fall from five to less than one percent. We then explore the effects of various government policies. A pro-natal transfer or an education tax can increase fertility and reduce education spending, with heterogeneous effects across the income distribution. The policy mix that maximizes the current generation's welfare consists of an education tax of 22% and moderate pro-natal transfers. This would raise average fertility by about 11% and decrease education spending by 39%. Although this policy increases the welfare of the current generation, it may not do the same for future generations as it lowers their human capital.

Keywords: Fertility, Status, Externality, Education, Childlessness, Korea

JEL Classification: D13, E24, I2, J10, J13, D62, O40

Suggested Citation

Kim, Seongeun and Tertilt, Michèle and Yum, Minchul, Status Externalities in Education and Low Birth Rates in Korea (April 28, 2023). Available at SSRN: https://ssrn.com/abstract=3866660 or http://dx.doi.org/10.2139/ssrn.3866660

Seongeun Kim

Sejong University ( email )

209 Neungdong-ro, Gwangjin-gu
Seoul, 05006
Korea, Republic of (South Korea)

HOME PAGE: http://https://sites.google.com/site/sekimphd

Michèle Tertilt (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Minchul Yum

University of Southampton ( email )

Southampton
United Kingdom

CEPR ( email )

London
United Kingdom

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