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Dynamic inefficiency, public debt and endogenous fertility

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  • Luciano fanti
  • Luca Spataro

Abstract

In this paper we show that, when endogenous fertility is considered via Cobb-Douglas preferences, public debt plays a clear-cut role on dynamic inefficiency (DI) of an OLG economy: in fact, for correcting the DI problem, debt must be increased (decreased) when the economy is overaccumulating (underaccumulating). The occurrence of overaccumulation, and, thus, the necessity of a positive level of debt, is favoured by a small capital income share, on the technological side, and a sufficiently high degree of patience and a low preference for children on preferences grounds. As for the optimal level of debt, our analysis shows that a high level ofdebt is more likely to be optimal for countries with a relatively low share of capital, with high costs for rearing children, with high individuals' degree of patience; as for individuals preference for children, as expected, the preference for a numerous family reduces the risk of overaccumulation and, thus, the optimal level of national debt. Moreover, interestingly, although in our model the occurrence of dynamic inefficiency (DI) does not depend on the level of the child rearing cost, such cost magnifies the degree of inefficiency and, therefore, a higher public debt is required for correcting DI. Finally, it is argued that such findings can provide useful criteria for assessing the optimality of public debt-cutting policies undertaken by several Europen countries.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2004/38.

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Date of creation: 01 Jan 2004
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Handle: RePEc:pie:dsedps:2004/38

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Related research

Keywords: Overlapping Generations; endogenous fertility; dynamic inefficiency; debt;

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Cited by:
  1. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Fanti, Luciano & Gori, Luca, 2010. "On economic growth and minimum wages," MPRA Paper 25842, University Library of Munich, Germany.
  3. Manuela Gussoni - Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  4. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  5. Luciano Fanti & Luca Gori, 2009. "Endogenous lifetime in an overlapping generations small open economy," Discussion Papers 2009/92, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  6. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  7. Fanti, Luciano & Gori, Luca, 2010. "Child policy solutions for the unemployment problem," Economics Letters, Elsevier, vol. 109(3), pages 147-149, December.
  8. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  9. Luciano Fanti & Luca Gori, 2012. "PAYG Pensions and Economic Cycles Exogenous versus Endogenous Fertility," Public Finance Review, , vol. 40(2), pages 240-269, March.

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