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Wealth Composition, Endogenous Fertility and the Dynamics of Income Inequality

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.

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Paper provided by Insper Working Paper, Insper Instituto de Ensino e Pesquisa in its series Insper Working Papers with number wpe_7.

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Date of creation: Oct 2000
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Handle: RePEc:ibm:ibmecp:wpe_7
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  1. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
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  7. Laitner, John, 1992. "Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers," Journal of Economic Theory, Elsevier, vol. 58(2), pages 135-170, December.
  8. Veloso, F.A., 2000. "Income Composition Endogenous Fertility and Schooling Investments in Children," Insper Working Papers wpe_6, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  9. Raut, L. K., 1990. "Capital accumulation, income distribution and endogenous fertility in an overlapping generations general equilibrium model," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 123-150, November.
  10. Abhijit Banerjee & Andrew F. Newman, 1989. "Risk-Bearing and the Theory of Income Distribution," Discussion Papers 877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Borjas, George J, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 123-50, February.
  12. Behrman, Jere R & Taubman, Paul, 1990. "The Intergenerational Correlation between Children's Adult Earnings and Their Parents' Income: Result from the Michigan Panel Survey of Income Dynamics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 36(2), pages 115-27, June.
  13. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  14. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
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  16. Lewis, H Gregg, 1973. "Economic Analysis of Fertility in Israel: Point and Counterpoint: Comment," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S234-37, Part II, .
  17. Palivos, Theodore, 1995. "Endogenous fertility, multiple growth paths, and economic convergence," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1489-1510, November.
  18. Ben-Porath, Yoram, 1973. "Economic Analysis of Fertility in Israel: Point and Counterpoint," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S202-33, Part II, .
  19. Lam, David, 1986. "The Dynamics of Population Growth, Differential Fertility, and Inequality," American Economic Review, American Economic Association, vol. 76(5), pages 1103-16, December.
  20. Michael Kremer & Daniel Chen, 2000. "Income-distribution Dynamics with Endogenous Fertility," NBER Working Papers 7530, National Bureau of Economic Research, Inc.
  21. Tamura, R., 1991. "Fertility , Human Capital and the "Wealth of Nations"," Working Papers 91-17, University of Iowa, Department of Economics.
  22. Gary D. Hansen & Edward C. Prescott, 1998. "Malthus to Solow," NBER Working Papers 6858, National Bureau of Economic Research, Inc.
  23. Song Han & Casey B. Mulligan, . "Human Capital, Heterogeneity, and the Estimation of Degrees of Intergenerational Mobility," University of Chicago - Population Research Center 97-3, Chicago - Population Research Center.
  24. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  25. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  26. Tamura, Robert, 1994. "Fertility, Human Capital and the Wealth of Families," Economic Theory, Springer, vol. 4(4), pages 593-603, May.
  27. Daniel Chen & Michael Kremer, 1999. "Income-Distribution Dynamics with Endogenous Fertility," American Economic Review, American Economic Association, vol. 89(2), pages 155-160, May.
  28. L. K. Raut, . "Capital Accumulation, Income Distribution and Endogenous Fertility in an Overlapping General Equilibrium Model," University of Chicago - Population Research Center 86-11, Chicago - Population Research Center.
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