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Endogenous fertility, endogenous lifetime and economic growth: the role of child policies

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  • Fanti, Luciano
  • Gori, Luca

Abstract

We examine the effects of child policies on both transitional dynamics and long-term demo-economic outcomes in an overlapping-generations neoclassical growth model à la Chakraborty (2004) extended with endogenous fertility under the assumption of weak altruism towards children. The government invests in public health, and an individual’s survival probability at the end of youth depends on health expenditure. We show that multiple development regimes can exist. However, poverty or prosperity do not necessarily depend on the initial conditions, since they are the result of how child policy is designed. A child tax for example can be used effectively to enable those economies that were entrapped in poverty to prosper. There is also a long-term welfare-maximising level of the child tax. We show that, a child tax can be used to increase capital accumulation, escape from poverty and maximise long-term welfare also when (i) a public pay-as-you-go pension system is in place, (ii) the government issues an amount of public debt. Interestingly, there also exists a couple child tax-health tax that can be used to find the second-best optimum optimorum. In addition, we show that results are robust to the inclusion of decisions regarding the child quantity-quality trade off under the assumption of impure altruism. In particular, there exists a threshold value of the child tax below (resp. above) which child quality spending is unaffordable (resp. affordable) and different scenarios are in existence.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44898.

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Date of creation: 09 Mar 2013
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Handle: RePEc:pra:mprapa:44898

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Keywords: Child policy; Endogenous fertility; Health; Life expectancy; OLG model;

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Cited by:
  1. Fanti, Luciano & Gori, Luca, 2009. "A two-sector OLG economy: economic growth and demographic behaviour," MPRA Paper, University Library of Munich, Germany 18869, University Library of Munich, Germany.
  2. Fanti, Luciano & Gori, Luca & Tramontana, Fabio, 2011. "Endogenous lifetime, accidental bequests and economic growth," MPRA Paper, University Library of Munich, Germany 34647, University Library of Munich, Germany.
  3. Fanti, Luciano & Gori, Luca, 2010. "Public expenditure on health and private old-age insurance in an OLG growth model with endogenous fertility: chaotic cycles under perfect foresight," MPRA Paper, University Library of Munich, Germany 23697, University Library of Munich, Germany.

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