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Optimal population and education

  • DAVILA, Julio


    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

If raising and educating children is a private cost to households, while the availability of skilled labor supply resulting from the households' fertility and education choices is a public good, then competitive equilibria typically deliver a suboptimal mix of size and skills of the population. In particular, households would underinvest in their children education compared to the optimal level. This is the case even if households are aware of the increase in savings returns implied by a higher supply of skilled labor and manage to coordinate to try to exploit this effect. In a setup devoid of altruistic motives, this paper shows that a tax-financed compulsory education is unlikely to implement the optimal steady state, even if the mandatory level of education is the optimal one (the system of equations is overdetermined). Nevertheless, a pensions scheme that makes payments contingent to the household fertility and investment in its children's education can implement the first-best steady state. The pension scheme is balanced period by period by financing pensions through a payroll tax on the increase in children's labor income resulting from their parents' human capital investment.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011060.

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Date of creation: 07 Dec 2011
Date of revision:
Handle: RePEc:cor:louvco:2011060
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  1. G. Abío & Geraldine Mahieu & Cio Patxot, 2003. "On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting," CESifo Working Paper Series 1050, CESifo Group Munich.
  2. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521887427.
  3. Schoonbroodt, Alice & Tertilt, Michèle, 2014. "Property rights and efficiency in OLG models with endogenous fertility," Journal of Economic Theory, Elsevier, vol. 150(C), pages 551-582.
  4. Oded Galor, 2006. "The Demographic Transition," Working Papers 2006-24, Brown University, Department of Economics.
  5. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203, July.
  6. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
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