Birth control, income redistribution, and the rate of saving: The case of Mexico

Abstract

If different groups of people in a low-income society save at different average rates, a program of birth control may affect the aggregate rate of saving by changing the relative shares of income accruing to these groups. A model is outlined in which this process occurs. The only group that saves is profit recipients; peasants and secondary sector employees consume all their income. A decline in fertility leads to a lower demand for food and a lower price of food. This results in a lower money supply price of labor in the secondary sector, and hence greater profits and greater saving. On the other hand, a fertility decline may eventually produce a higher real standard of living among rural workers, hence a higher supply price of secondary sector labor, lower profits and lower saving. These effects are investigated in a simulation of Mexican economic growth with (a) constant high fertility and (b) a declining birth rate such as might occur if a successful national birth control program were instituted. The birth control program results in a higher rate of aggregate saving over the first several decades, and eventually a lower rate of saving once a higher standard of living has been attained.