Family Policies: What Does the Standard Endogenous Fertility Model Tell Us?

Authors


  • Thomas Baudin, CORE, Bureau b.117, Voie du Roman Pays 34, B-1348 Louvain-la-Neuve, Belgium (thomas.baudin@uclouvain.be).

  • This research is part of the ARC project 09/14-018 on “sustainability” (French speaking community of Belgium). It has also benefited from financial and scientific support from the Chair Lhoist Berghmans in Environmental Economics and the Paris School of Economics. I am especially grateful to Bertrand Wigniolle, David de la Croix, Pierre Pestieau, Cecilia Garcia Peinline imagealosa, Thomas Seegmuller, Omar Licandro, and Victor Hiller for their invaluable help. I would like to thank an associate editor and two referees for insightful comments that lead to a substantial revision of the paper. The traditional disclaimer applies.

Abstract

Very few studies have explored the optimality properties of the “standard model” of fertility where parents must determine their optimal trade-off between quality and quantity. The present paper works to fill that gap and find three main results. First, when there exist positive externalities in the accumulation of human capital, it is optimal to subsidize education and to tax births. Second, when the Social Welfare Function does not consist of the average utility, the social returns on educational investments can be weaker than the private returns when the optimal population growth rate is negative. In this case, the optimal economic policy consists in subsidizing births and taxing education. Finally, when the health expenditure is introduced as another source of positive externalities, it can be optimal to tax the parental health expenditure to decentralize the first-best path even if this expenditure is always too low at the laissez-faire equilibrium.

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