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Quantity–quality trade-off of children and school finance

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  • Yilmaz, Kuzey

Abstract

To understand income inequality and intergenerational mobility of income, it is essential to account for the fertility differential between the poor and the rich because it affects the human capital investment through the quantity–quality trade-off of children. We develop a dynamic general equilibrium in which parents choose the quantity of children, transfer a preschool ability to their children, determine the quality of children by choosing private expenditures on basic education (in addition to public expenditures), and leave a bequest that could be used to finance college education. We find that incorporating fertility behavior, especially differential fertility is crucial to capture human capital formation in the U.S. economy. We also analyze the impact of basic education subsidies and college subsidies on welfare, inequality, and intergenerational mobility.

Suggested Citation

  • Yilmaz, Kuzey, 2018. "Quantity–quality trade-off of children and school finance," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 188-203.
    • Handle: RePEc:eee:jmacro:v:56:y:2018:i:c:p:188-203
    DOI: 10.1016/j.jmacro.2018.02.001
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    More about this item

    Keywords

    Quantity–quality trade-off; Fertility; Education subsidies;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I2 - Health, Education, and Welfare - - Education
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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