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The Effects of the Size of the Public Sector on Fertility

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  • Mikko Puhakka

    ()
    (Department of Economics, University of Oulu)

  • Matti Viren

    ()
    (Department of Economics, University of Turku)

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    Abstract

    We construct a simple exchange economy overlapping generations model in which there are along with a public social security various private insurance schemes to explore fertility and the effects of various variables on it. In the private system parents can invest in children and benefit from their support (care and income support) in the old age. An introduction of the public system will lower the incentive to have children, i.e. the fertility will be lower. This is an important negative externality of public pension system. We test some of the model's basic implications using long historical panel data from 11 countries for the period 1750-1995. In addition, two other data sets, the WDI (World Bank) and MZES (Manheim University) are used to reinforce the empirical results that are obtained with historical data. These analyses show that, opposite to common beliefs, there is a positive relationship between ageing and fertility if we control for the key determinants of fertility (size of the public sector, level of income, education and infant mortality). By contrast there is a strong negative relationship between the size of the public sector and fertility. The same is true in terms of income and education while the fertility effect of infant mortality is clearly positive.

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    Bibliographic Info

    Paper provided by Aboa Centre for Economics in its series Discussion Papers with number 8.

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    Length: 26
    Date of creation: Oct 2006
    Date of revision:
    Handle: RePEc:tkk:dpaper:dp8

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    Keywords: fertility; pensions; overlapping generations;

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    1. Robert J. Barro & Gary S. Becker, . "Fertility Choice in a Model of Economic Growth," University of Chicago - Population Research Center 88-8, Chicago - Population Research Center.
    2. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    3. Michele Boldrin & Mariacristina De Nardi & Larry E. Jones, 2005. "Fertility and Social Security," NBER Working Papers 11146, National Bureau of Economic Research, Inc.
    4. Azariadis, Costas & Galasso, Vincenzo, 2002. "Fiscal Constitutions," Journal of Economic Theory, Elsevier, vol. 103(2), pages 255-281, April.
    5. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
    6. Ehrlich, Isaac & Lui, Francis T, 1998. "Social Security, the Family, and Economic Growth," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 390-409, July.
    7. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
    8. Rosati, Furio Camillo, 1996. "Social security in a non-altruistic model with uncertainty and endogenous fertility," Journal of Public Economics, Elsevier, vol. 60(2), pages 283-294, May.
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