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Wealth Composition, Endogenous Fertility and the Dynamics of Income Inequality

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  • Fernando Veloso

    (IBMEC)

Abstract

This paper analyzes how differences in the composition of wealth between human and physical capital among families affect fertility choices. These in turn influence the dynamics of wealth and income inequality across generations through a tradeoff between quantity and quality of children. Wealth composition affects fertility because physical capital has only a wealth effect on number of children, whereas human capital increases the time cost of child-rearing in addition to the wealth effect. I construct a model combining endogenous fertility with borrowing constraints in human capital investments, in which wealth composition is determined endogenously. The model is calibrated to the PNAD, a Brazilian household survey, and the main findings of the paper can be summarized as follows. First, the model implies that the cross-section relationship between fertility and wealth typically displays a U-shaped pattern, reflecting differences in wealth composition between poor and rich families. Also, the quantity-quality tradeoff implies a concave cross-section relationship between investments per child and wealth. Second, as the economy develops and families overcome their borrowing constraints, the negative effect of wealth on fertility becomes smaller, and persistence of inequality declines accordingly. The empirical evidence presented in this paper is consistent with both implications.

Suggested Citation

  • Fernando Veloso, 2000. "Wealth Composition, Endogenous Fertility and the Dynamics of Income Inequality," Econometric Society World Congress 2000 Contributed Papers 1281, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1281
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    Cited by:

    1. Verónica Fossati, 2002. "Desigualdad y Crecimiento. Un Análisis para las Provincias Argentinas," Department of Economics, Working Papers 043, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    2. Paolo Porchia & Pedro Gete, 2011. "Fertility and Consumption when Having a Child is a Risky Investment," 2011 Meeting Papers 563, Society for Economic Dynamics.

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