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Child Benefit and Fiscal Burden in the Endogenous Fertility Setting

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  • Ryo Ishida

    ()
    (Policy Research Institute, the Ministry of Finance, Japan)

  • Kazumasa Oguro

    ()
    (Institute of Economic Research, Hitotsubashi University)

  • Junichiro Takahata

    (JICA Research Institute)

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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File URL: http://www.mof.go.jp/pri/research/discussion_paper/ron230.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Policy Research Institute, Ministry of Finance Japan in its series Discussion papers with number ron230.

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Length: 57 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:mof:wpaper:ron230

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Web page: http://www.mof.go.jp/pri/
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Keywords: Endogenous fertility; Pareto-efficiency; child benefit; fiscal burden;

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  1. 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.
  2. Becker, Gary S & Barro, Robert J, 1988. "A Reformulation of the Economic Theory of Fertility," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 1-25, February.
  3. Mikhail Golosov & Larry E. Jones & Michèle Tertilt, 2007. "Efficiency with Endogenous Population Growth," Econometrica, Econometric Society, vol. 75(4), pages 1039-1071, 07.
  4. Andrew Abel & Gregory N. Mankiw & Lawrence H. Summers & Richard Zeckhauser, . "Assessing Dynamic Efficiency: Theory and Evidence," Rodney L. White Center for Financial Research Working Papers 14-88, Wharton School Rodney L. White Center for Financial Research.
  5. Raut, L K & Srinivasan, T N, 1994. "Dynamics of Endogenous Growth," Economic Theory, Springer, vol. 4(5), pages 777-90, August.
  6. Rupa Chakrabarti, 1999. "Endogenous fertility and growth in a model with old age support," Economic Theory, Springer, vol. 13(2), pages 393-416.
  7. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
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