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Child Benefit and Fiscal Burden in the Endogenous Fertility Setting

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  • Ishida, Ryo
  • Oguro, Kazumasa
  • Takahata, Junichiro

Abstract

This paper analyzes the possibility of improving the efficiency of child benefit programs in an overlapping generations economy that has endogenous fertility and large government debt levels. We derive the conditions for this improvement using Representative-Consumer and Children-for-Representative-Consumers efficiency criteria in the endogenous fertility setting, as proposed by Michel and Wigniolle (2007). We find that the result crucially depends on the relative amount of accumulated government debt in the economy. When the elasticity of interest rates to child benefit is close to zero and there exists a huge amount of accumulated debt in the economy, financing child benefit programs by issuing debt and using lump-sum tax leads to RC-improvements. This finding is likely to hold in the economies of developed countries that have low fertility rates. We finally provide the implications of these findings on the real economy.

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Bibliographic Info

Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series CIS Discussion paper series with number 533.

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Length: 55 p.
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:hit:cisdps:533

Note: The views expressed in this material are those of the authors and do not necessarily reflect the views of JICA, the Ministry of Finance in Japan, or the Policy Research Institute.
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Keywords: Endogenous fertility; Pareto-efficiency; child benefit; fiscal burden;

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  1. Gary S. Becker & Robert J. Barro, . "A Reformulation of the Economic Theory of Fertility," University of Chicago - Population Research Center 85-11, Chicago - Population Research Center.
  2. Mikhail Golosov & Larry E. Jones & Michèle Tertilt, 2007. "Efficiency with Endogenous Population Growth," Econometrica, Econometric Society, vol. 75(4), pages 1039-1071, 07.
  3. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
  4. Nishimura, Kazuo & Zhang, Junsen, 1992. "Pay-as-you-go public pensions with endogenous fertility," Journal of Public Economics, Elsevier, vol. 48(2), pages 239-258, July.
  5. Rupa Chakrabarti, 1999. "Endogenous fertility and growth in a model with old age support," Economic Theory, Springer, vol. 13(2), pages 393-416.
  6. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
  7. Raut, L K & Srinivasan, T N, 1994. "Dynamics of Endogenous Growth," Economic Theory, Springer, vol. 4(5), pages 777-90, August.
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