We examine the long-run effects of the pay-as-you-go (PAYG) social security scheme on fertility and welfare of individuals in an overlapping generations model, assuming that child-care services are available in the market. We show that the impact of a tax increase on fertility depends on the relative magnitudes of the standard intergenerational redistribution effect through the social security system, the (implicit) subsidy effect through tax-exemption of child rearing at home, and the price effect through changes in the relative price of market child care, and that if parental child-rearing time is inelastic, a tax cut could bring about a Pareto-improving allocation.
Fertility Child care outside the home Pay-as-you-go social security
D91 J13 J21
This is a preview of subscription content, log in to check access.
The authors wish to thank Murray C. Kemp and seminar participants at the Nagoya Macroeconomics Workshop for their comments. They are also indebted to two anonymous referees and to the editor, Alessandro Cigno, for their helpful comments and suggestions. This research is financially supported by the Postal Life Insurance Foundation of Japan. The second author also acknowledges financial support from the Japan Society for the Promotion of Science (Grant no. 18530127).
Ahn N, Mira P (2002) A note on the changing relationship between fertility and female employment rates in developed countries. J Popul Econ 15:667–682CrossRefGoogle Scholar
Balestrino A, Cigno A, Pettini A (2002) Endogenous fertility and the design of family taxation. Int Tax Public Financ 9:175–193CrossRefGoogle Scholar
Balestrino A, Cigno A, Pettini A (2003) Doing wonders with an egg: optimal re-distribution when households differ in market and non-market abilities. J Public Econ Theory 5:479–498CrossRefGoogle Scholar