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Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution

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  • Zhao Kai

    ()
    (University of Western Ontario)

Abstract

Economists and demographers have long argued that fertility differs by income (differential fertility), and that social security creates incentives for people to rear fewer children. Does the effect of social security on fertility differ by income? Does social security further affect the dynamics of the earnings distribution through its differential effects on fertility? We answer these questions in a three-period OLG model with heterogeneous agents and endogenous fertility. We find that given its redistributional property, social security reduces fertility of the poor proportionally more than it reduces fertility of the rich. Assuming that earning ability is transmitted from parents to children, the differential effects of social security on fertility can have a significant impact on the dynamics of the earnings distribution: a relatively lower fertility rate among the poor can lead to a new earnings distribution with a smaller portion of poor people and a higher average earnings level. With reasonable parameter values, our numerical exercise shows that the effects of social security on differential fertility and the dynamics of the earnings distribution are quantitatively important.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 11 (2011)
Issue (Month): 1 (August)
Pages: 1-31

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Handle: RePEc:bpj:bejmac:v:11:y:2011:i:1:n:26

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Citations

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Cited by:
  1. Kai Zhao, 2014. "War Finance and the Baby Boom," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 459-473, July.
  2. Alice Schoonbroodt & Michèle Tertilt, 2010. "Who Owns Children and Does it Matter?," NBER Working Papers 15663, National Bureau of Economic Research, Inc.
  3. Zhao, Kai, 2011. "War Debt and the Baby Boom," MPRA Paper 36330, University Library of Munich, Germany.
  4. ELOUNDOU-ENYEGUE Parfait & TENIKUE Michel & KANDIWA Vongai M., 2013. "Population Contributions to Global Income Inequality: A Fuller Account," CEPS/INSTEAD Working Paper Series 2013-28, CEPS/INSTEAD.
  5. Larry E. Jones & Alice Schoonbroodt & Michèle Tertilt, 2010. "Fertility Theories: Can They Explain the Negative Fertility-Income Relationship?," NBER Chapters, in: Demography and the Economy, pages 43-100 National Bureau of Economic Research, Inc.
  6. Daishin Yasui, 2014. "A Theory of the Cross-Sectional Fertility Differential: Jobsf Heterogeneity Approach," Discussion Papers 1409, Graduate School of Economics, Kobe University.

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