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Intergenerational Transfers and the Fertility-Income Relationship

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  • Cordoba, Juan Carlos
  • Ripoll, Marla

Abstract

Extensive evidence from cross-sectional data reveals a robust negative relationship betweenfamily income and fertility. This paper argues that constraints to intergenerational transfersare crucial for understanding this relationship. If parents could legally impose debt obligationson their children as a way to recover the costs incurred in raising them, then fertility wouldbe independent of parental income. In this case, if the present value of a childÂ’s future incomeexceeds the cost of raising the child, as the evidence suggests is the case, parents would haveincentives to raise as many children as possible in order to maximize rents. A relationshipbetween fertility and income arises when parents are unable to leave debts behind either becauseof legal, enforcement, or moral constraints. We also derive the conditions under which thefertility-income relationship is negative. Notably, an intergenerational elasticity of substitutionlarger than one is required. In this case, parental consumption is a good substitute for childrenÂ’sconsumption making it optimal for income rich parents to have fewer children.Extensive evidence from cross-sectional data reveals a robust negative relationship between family income and fertility. This paper argues that constraints to intergenerational transfers are crucial for understanding this relationship. If parents could legally impose debt obligations on their children as a way to recover the costs incurred in raising them, then fertility would be independent of parental income. In this case, if the present value of a childÂ’s future income exceeds the cost of raising the child, as the evidence suggests is the case, parents would have incentives to raise as many children as possible in order to maximize rents. A relationship between fertility and income arises when parents are unable to leave debts behind either because of legal, enforcement, or moral constraints. We also derive the conditions under which the fertility-income relationship is negative. Notably, an intergenerational elasticity of substitution larger than one is required. In this case, parental consumption is a good substitute for childrenÂ’s consumption making it optimal for income rich parents to have fewer children.

Suggested Citation

  • Cordoba, Juan Carlos & Ripoll, Marla, 2014. "Intergenerational Transfers and the Fertility-Income Relationship," Staff General Research Papers Archive 37662, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:37662
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    References listed on IDEAS

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    Cited by:

    1. Cordoba, Juan Carlos & Ripoll, Marla, 2014. "The Elasticity of Intergenerational Substitution, Parental Altruism, and Fertility Choice," Staff General Research Papers Archive 37766, Iowa State University, Department of Economics.
    2. David de la Croix & Clara Delavallade, 2018. "Religions, Fertility, And Growth In Southeast Asia," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(2), pages 907-946, May.
    3. Gori, Luca & Sodini, Mauro, 2018. "A contribution to the theory of fertility and economic development," GLO Discussion Paper Series 170, Global Labor Organization (GLO).
    4. Cordoba, Juan Carlos & Liu, Xiying, 2014. "Altruism, Fertility and Risk," Staff General Research Papers Archive 37481, Iowa State University, Department of Economics.
    5. Liu, Xiying, 2015. "Optimal population and policy implications," ISU General Staff Papers 201501010800005546, Iowa State University, Department of Economics.
    6. Juan Carlos Cordoba, 2015. "Children, Dynastic Altruism and the Wealth of Nations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 774-791, October.

    More about this item

    Keywords

    Fertility; credit frictions; parental altruism; bequest constraints; elasticity of intertem-poral substitution;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J1 - Labor and Demographic Economics - - Demographic Economics

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