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War Debt and the Baby Boom

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  • Zhao, Kai

Abstract

In this paper, I argue that an important cause of the postwar baby boom in the US was the dramatic reduction in government debt (via income taxation) in the two decades following WWII. A reduction in government debt (via income taxation) increases fertility by changing the tax burden of different generations. A higher current income tax increases fertility by lowering after-tax wage and therefore the opportunity cost of child-rearing (when the cost of child-rearing involves parental time). A lower government debt level implies a lower tax burden on children in the future and thus a higher lifetime utility for them, which also increases current fertility if parents have Barro-Becker type preferences (the children's utility is included in the parents' utility function). The United States government accumulated a large amount of debt from WWII. The debt-GDP ratio peaked at 108% in 1946, and the debt level was reduced significantly (via taxation) in the following two decades. The debt-GDP ratio was only 35% in 1966. In a quantitative Barro-Becker model with government debt, I show that a reduction in government debt (financed by income taxation) such as the one experienced by the postwar US can generate a significant increase in fertility, which in magnitude accounts for 48% of the postwar baby boom in the US.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36330.

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Date of creation: 22 Jul 2011
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Handle: RePEc:pra:mprapa:36330

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Keywords: Fertility; Baby boom; Government debt; WWII;

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  1. David de la Croix & Matthias Doepke, 2001. "Inequality and Growth: Why Differential Fertility Matters," UCLA Economics Working Papers 803, UCLA Department of Economics.
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  10. Kai Zhao, 2009. "Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution," UWO Department of Economics Working Papers 20091, University of Western Ontario, Department of Economics.
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Cited by:
  1. Zhao Kai, 2011. "Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-31, August.
  2. Fanti, Luciano & Spataro, Luca, 2013. "On the relationship between fertility and public national debt," Economic Modelling, Elsevier, vol. 33(C), pages 843-849.

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