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Family Policies: What Does The Standard Endogenous Fertility Model Tell Us?

  • Thomas BAUDIN

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE) and Institut de Recherches Economiques et sociales (IRES))

Very few studies have explored the optimality properties of the "standard model" of fertility where parents must determine their optimal trade-off between quality and quantity. The present paper works to fill that gap and find three main results. First, when there exist positive externalities in the accumulation of human capital, it is optimal to subsidize education and to tax births. Second, when the Social Welfare Function does not consist of the average utility, the social returns on educational investments can be weaker than the private returns when the optimal population growth rate is negative. In this case, the optimal economic policy consists in subsidizing births and taxing education. Finally, when the health expenditure is introduced as another source of positive externalities, it can be optimal to tax the parental health expenditure to decentralize the first-best path even if this expenditure is always too low at the laissez-faire equilibrium.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009041.

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Length: 40
Date of creation: 16 Dec 2009
Date of revision:
Handle: RePEc:ctl:louvir:2009041
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