Analysis of Child Care Policies with an Uncertainty Model

The purpose of this paper is examination of how fertility is determined using a model with income uncertainty. Income uncertainty here is related to unemployment. The analysis is based on a model that differs from perfect foresight, with a situation in which income cannot be earned because of unemployment, but where future unemployment is not known in advance. In a small open economy, both a child allowance and unemployment benefits have the effect of raising fertility rates. Further analysis conducted with a closed economy has yielded interesting results. The presence of unemployment benefits ultimately leads to a lower fertility rate through lower accumulation of capital stock. However, it was demonstrated that a higher level of unemployment benefits engenders a higher fertility rate than in the absence of benefits.