The optimal fiscal policy in a OLG model with endogenous fertility
AbstractIn this paper we show that, when endogenous fertility choices are accounted for, the traditional rule provided by Diamond (1965) should be amended in order to effectively implement the first best allocation of an OLG economy, even in the presence a non distortionary tax for financing national debt. With Cobb-Douglas preferences and fixed costs for rearing children, it turns out that the implementable equilibrium is in general suboptimal and dynamically inefficient (i.e. with overaccumulation of physical capital). The reason for this result is that, when fertility choices are taken as endogenous, a further policy instrument is necessary for controlling it: in this respect, by combining a lump sum tax upon the young adult with a subsidy for each child or with a lump sum trasfer to the old, the first best allocation can be implemented.
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Bibliographic InfoPaper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2004/36.
Date of creation: 01 Jan 2004
Date of revision:
Overlapping Generations; endogenous fertility; dynamic inefficiency; debt;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
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