Pension and Child Care Policies with Endogenous Fertility

This paper describes how a child allowance policy and income transfer to older people policy alter fertility and economic growth under a pay-as-you-go pension system. Moreover, this paper presents ways to finance such policies: one for income taxation and the other for consumption tax. The results presented in this paper are as follows. First, the relation between fertility and economic growth depends on fertility. This relation is positive if fertility is at a certain level. However, if fertility is low or high, this relation is negative. Second, a child allowance does not always raise the fertility rate. On the other hand, income transfer to older people raises the fertility rate. This result underscores that it is important to consider policies for older people when considering how to raise the fertility rate. Income transfer to older people financed by consumption taxation can achieve two goals: increasing fertility in a society with fewer children, and providing income security for older people.