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The optimal fiscal policy in a OLG model with endogenous fertility

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  • Luciano fanti
  • Luca Spataro

Abstract

In this paper we show that, when endogenous fertility choices are accounted for, the traditional rule provided by Diamond (1965) should be amended in order to effectively implement the first best allocation of an OLG economy, even in the presence a non distortionary tax for financing national debt. With Cobb-Douglas preferences and fixed costs for rearing children, it turns out that the implementable equilibrium is in general suboptimal and dynamically inefficient (i.e. with overaccumulation of physical capital). The reason for this result is that, when fertility choices are taken as endogenous, a further policy instrument is necessary for controlling it: in this respect, by combining a lump sum tax upon the young adult with a subsidy for each child or with a lump sum trasfer to the old, the first best allocation can be implemented.

Suggested Citation

  • Luciano fanti & Luca Spataro, 2004. "The optimal fiscal policy in a OLG model with endogenous fertility," Discussion Papers 2004/36, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2004/36
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2004-36.pdf
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    Citations

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    Cited by:

    1. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
    2. Marco Guerrazzi, 2005. "Notes on Continuous Dynamic Models: the Benhabib-Farmer Condition for Indeterminacy," Discussion Papers 2005/54, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
    4. Manuela Gussoni & Andrea Mangani, 2012. "The Impact of Public Funding for Innovation on Firms' R&D Investments: Do R&D Cooperation and Appropriability Matter?," L'industria, Società editrice il Mulino, issue 2, pages 237-254.
    5. Fanti, Luciano & Gori, Luca, 2010. "Child policy solutions for the unemployment problem," Economics Letters, Elsevier, vol. 109(3), pages 147-149, December.
    6. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Lorenzo Corsini & Pier Mario Pacini & Luca Spataro, 2010. "Workers' Choice on Pension Schemes: an Assessment of the Italian TFR Reform Through Theory and Simulations," Discussion Papers 2010/96, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    8. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    10. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    11. Maurizio Lisciandra, 2007. "The Role of Reciprocating Behaviour in Contract Choice," Discussion Papers 2007/65, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    12. Luciano Fanti & Luca Gori, 2008. "PAYG pensions and economic cycles: exogenous versus endogenous fertility," Discussion Papers 2008/75, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    Overlapping Generations; endogenous fertility; dynamic inefficiency; debt;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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