Discussion Paper

No. 2012-47 | September 14, 2012
Public Debt, Child Allowances, and Pension Benefits with Endogenous Fertility

Abstract

The stock of public debt in some developed countries continues to increase because of a lack of tax revenues and the burdens of social security. Many of those developed countries suffer from lower birth rates. Child allowances might help to raise fertility, leading to higher tax revenue in the future because of an increase in the younger population. In this paper, the authors examine whether or not child allowances reduce the public debt stock as a share of Gross Domestic Product (GDP) in an economy with a pension system. As long as the long-run debt ratio is non-negative, child allowances financed by bonds always increase the public debt stock per unit of GDP.

JEL Classification

G23 H55 J13

Cite As

Masaya Yasuoka and Atsushi Miyake (2012). Public Debt, Child Allowances, and Pension Benefits with Endogenous Fertility. Economics Discussion Papers, No 2012-47, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-47

Assessment



Comments and Questions


Anonymous - report
February 12, 2013 - 09:22

Many nations employ child 'allowances' of some type - child benefit for example in the United Kingdom. Increasingly these benefits are coming under pressure due to public finance pressures - motivating a move from universal to targeted benefits. This paper takes an interesting perspective on this issue by arguing that ...[more]

... child allowances could arrest fertility declines and therefore improve dependency ratios over time. This is a theory paper assessing the direct (i.e. increasing public debt) negative impact and the indirect (increased fertility) positive effect, with the indirect effect dominating. It needs a careful review for English use by a native speaker but otherwise is a fine paper. The potential policy options a Government might face would be worth teasing out more but perhaps the paper works best as a short model as currently drafted.