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Saving, fertility and public policy in an overlapping generations small open economy

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  • Spataro, Luca
  • Fanti, Luciano
  • Pacini, Pier Mario

Abstract

Motivated by the recent increase of public debt experienced by many developed countries, we develop an OLG model to provide the fiscal policies needed for any public debt level to be sustainable in steady state and the consequences that such policies produce on saving and fertility in a small open economy. Our main finding is that a reduction of public debt (an event currently publicly debated) needs tax adjustments that eventually will be detrimental for both fertility and saving under a low-interest-rate regime (possibly similar to the current world regime), with opposite transitional effects on fertility and saving. On the contrary, the needed fiscal adjustments will eventually increase saving and fertility under a high-interest-rate regime, with opposite transitional effects on fertility and saving. Besides providing clear-cut policy implications, our analysis offers possible testable implications concerning the pattern of fertility, taxes and public debt observed in many developed economies.

Suggested Citation

  • Spataro, Luca & Fanti, Luciano & Pacini, Pier Mario, 2019. "Saving, fertility and public policy in an overlapping generations small open economy," Economic Modelling, Elsevier, vol. 81(C), pages 16-29.
    • Handle: RePEc:eee:ecmode:v:81:y:2019:i:c:p:16-29
    DOI: 10.1016/j.econmod.2018.12.003
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    More about this item

    Keywords

    Overlapping generations; Endogenous fertility; Saving; Small open economy; Public national debt;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • 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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