Endogenous Fertility Policy

49 Pages Posted: 8 Oct 2004

See all articles by Alison L. Booth

Alison L. Booth

Australian National University (ANU) - Research School of Social Sciences (RSSS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Facundo Sepulveda

University of Santiago, Chile

Date Written: August 2004

Abstract

In this Paper, we study the role of subsidies to fertility in ensuring the political viability of unfunded social security (SS). In our model, agents are heterogeneous in age and income. Young generations confront promises made previously by older generations, and in turn choose current levels of fertility subsidies, and future levels of social security benefits. We find that subsidies to the costs of children expand the set of equilibria, making social security viable where it would otherwise have to be abandoned. Moreover, the model successfully captures the observed evolution of social security and family support systems during the demographic transition. Our results indicate that the seemingly explosive evolution of SS taxes will be curbed once the underlying demographic transition is completed, after which the SS system will converge to a steady state lower than simple extrapolation of current trends would imply, and fertility will rebound with the aid of higher subsidy levels.

Keywords: Political economy, OLG models, social security, endogenous fertility, redistribution

JEL Classification: E62, H20, H30, H55, J13, J14

Suggested Citation

Booth, Alison L. and Sepulveda, Facundo, Endogenous Fertility Policy (August 2004). CEPR Discussion Paper No. 4575. Available at SSRN: https://ssrn.com/abstract=602362

Alison L. Booth (Contact Author)

Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 3285 (Phone)
+61 2 6125 0182 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Facundo Sepulveda

University of Santiago, Chile ( email )

Santiago
Chile

HOME PAGE: http://www.fsp.cl

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