PhD Seminar (Econ)
Date & time
This paper considers a unified welfare state with intergenerational political economy and endogenous fertility. It shows that fertility has no effect on the public education tax rate and a negative effect on the social security tax rate when each policy is implemented independently. When implemented jointly, competition for government funds will cause a higher level of fertility to increase the education tax rate and decrease the social security tax rate. Both policies, whether implemented independently or jointly, affect steady-state levels of human and physical capital. In contrast to previous studies, the independent implementation of public education leads to lower steady-state levels of human and physical capital since higher fertility will dilute the level of physical capital per worker. Similarly, a PAYGO social security program, if the political power of the old is high enough, will crowd out private savings and reduce the steady-state levels of human and physical capital. When jointly implemented, the level of human and physical capital will once again be reduced when political power of the old is high enough. Overall, we show that when fertility is made endogenous, previous predictions about the effect of a unified welfare state on the economy may have been overly optimistic.