Document Type

Working Paper

Publication Date

10-5-2012

Working Paper Number

WP #12019, October 2012

Abstract

The Barro-Becker model of fertility has three controversial predictions: (i) fertility and schooling are independent of family income; (ii) children are a net financial burden to society; and (iii) individual consumption is negatively associated to individual income. We show that introducing credit frictions into the model helps overturn these predictions. In particular, a negative relationship between fertility and individual wage income can be obtained when the intertemporal elasticity of substitution is larger than one. The credit constrained model can also explain the quantity-quality trade-off: individuals with higher wage income choose more schooling and fewer children.

JEL Classification

D10, D64, D91, J1

File Format

application/pdf

Length

35 pages

File Function

This version: October 2012 (First version: January 2010)

Included in

Economics Commons

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