Government Policies, Endogenous Fertility, andconomic Growth
Date Issued
2009
Date
2009
Author(s)
Chen, Ying-an
Abstract
It is increasingly apparent that most countries in the world have undergone obvious demographic transitions, of which changes in fertility are one of the important causes. Existing empirical or theoretical studies also reveal that fertility behavior plays a significant role in the literature on endogenous growth. However, there is still relatively little theoretical literature analyzing the role of endogenous fertility in evaluating the effects of macroeconomic policies and analyzing how the government can combat reduced fertility via policies. As a consequence, the purpose of this dissertation is to explore the long-run effects of a subsidy policy, monetary policy, and tax reform policy on macroeconomic variables. Chapter 2 develops a real endogenous growth model characterized by different government financing methods and studies the positive and normative analyses of a subsidy policy. We show that a government’s financing method has major consequences for the effectiveness of a subsidy policy. A rise in the subsidy rate financed by a lump-sum tax affects fertility ambiguously, has a positive effect on the balanced growth rate, and impacts social welfare ambiguously. A rise in the subsidy rate financed by an income tax boosts fertility, depresses the long-run growth rate, and dampens social welfare. When financing is obtained from a consumption tax, a rise in the subsidy rate enhances fertility, has no effect on economic growth, and depresses social welfare. We also find that the optimal subsidy rate should be set at zero. Chapter 3 builds a monetary endogenous growth model with endogenous fertility and performs the positive and normative analyses of monetary and subsidy policies. We find that, in the money-in-the-utility-function framework, endogenous fertility crucially governs whether the neutrality of monetary policy exists and whether the optimal monetary policy obeys the Friedman’s rule. When endogenous fertility is present, a rise in the money growth rate raises fertility, reduces the economic growth rate, and has an ambiguous effect on social welfare. The welfare–maximizing monetary policy does not follow the Friedman’s rule. In addition, a rise in the subsidy rate affects fertility ambiguously, has a positive effect on the balanced growth rate, and affects social welfare ambiguously. The optimal subsidy rate should be set at a non-zero value. Chapter 4 establishes a small open endogenous growth model with the presence of endogenous fertility and examines the effects of tax reform policies. We focus on not only how tax reforms alter the long-run growth rate, but also whether or not tax reforms policies can combat a decline in fertility. We also derive the optimal fiscal policies. Specifically, a reduction in the wage income tax with a revenue-neutral rise in a consumption tax leaves fertility and the balanced growth rate unchanged. A reduction in the capital income tax with a revenue-neutral increase in a consumption tax stimulates fertility and dampens the economic growth rate. A decrease in the foreign bond interest income tax with a revenue-neutral increase in a consumption tax depresses fertility and stimulates the balanced growth rate. Finally, in a small open endogenous growth model with endogenous fertility, the state of the economic system determines whether a first-best fiscal policy exists or not.
Subjects
Subsidy policy
Monetary policy
Tax reform policy
Endogenous fertility
Endogenous growth
Government financing
SDGs
Type
thesis
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