Alessandro Cigno

Economics of the family

The economics of the family is a field which has recently been attracting economists in growing numbers. This study provides a systematic exposition of the way that economists address such topical issues as why the birth rate tends to fall as the standard of living rises; why people are marrying less and divorcing more; and why Western populations are getting older. Ideal for advanced students, with its mix of theory and explanation, this book also presents the latest theoretical results of the literature.

Intergenerational transfers without altruism: Family, market and state

Abstract The article examines the possible role of the extended family, the capital market and the State in organising income transfers between generations and over the life-cycle of each generation. The underlying decision model is one of individuals who live three periods and wish to re-distribute consumption from the middle period of life to the first (youth) and the thrrd (old age). Total selfishness on the part of individuals is assumed in order to investigate the extent to which it is possible to explain reproduction and intergenerational transfers by self-interest alone. It is shown that such transfers could be generated, within an extended family framework, by a self-enforcing set of family rules. It is also shown that under certain circumstances, the opening of a capital market or a rise in the market rate of interest could break the extended family network, reduce the old to penury and cause a fall in fertility. The working of social security is examined against this background, and the implications of an externality associated with pension systems are discussed.

Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA

This study uses new theories of capital accumulation and fertility in a comparative framework to test predictions with time-series data for Germany, Italy, the UK, and the US. The exogenous-fertility model is based on models of Barro and Becker. The endogenous-fertility models are based on models of Veall and Nishimura and Zhang. It is assumed that life cycle periods are youth, middle age, and old age. Several theoretical frameworks are tested with endogenous and exogenous fertility and altruism and nonaltruism. Data are obtained during 1950-90. Dependent variables are the total lifetime fertility rate and real per capita household savings. Explanatory variables include social security, the real social security deficit per capita, the real rate of interest, the real per capita disposable income, the average male real wage rate, the average female real wage rate, and the real child benefit rate. The explanatory variables are individually graphed to show differences by country over time. Findings suggest that fertility is endogenous in a nonaltruistic model. The only model not rejected by the data was the model in which fertility and intergenerational transfers were explained by nonaltruistic concerns. Fertility was positively affected by the male wage rate in all countries. Fertility was negatively affected by the female wage rate in all countries. Disposable income was insignificant in the UK and Germany and positive and significant in Italy and the US. The interest rate was significant in only 1 model. Child benefits had a positive and significant effect on fertility in the UK. In savings models, disposable income was significant and positive, and child benefits and wage rates were insignificant. Social security coverage had a negative effect on fertility and a positive effect on savings, except in Germany. Findings indicate that saving and fertility are jointly determined.

A microeconomic analysis of the timing of births

Abstract The effects of personal characteristics, wage rates and career structures on the time-profile of childbearing among married couples are examined theoretically, through an intertemporal microeconomic model of family decisions, and empirically, by an econometric analysis of British womens childbearing and work histories. The effects of the mothers age on the ‘quality’ of the child, and the financial implications of interrupting the mothers career to care for a child are taken explicitly into account. The demographic consequences of economic policies are also examined.

Does Globalization Increase Child Labor

Abstract There is no empirical evidence that trade exposure per se increases child labor. As trade theory and household economics lead us to expect, the crosscountry evidence seems to indicate that trade reduces or, at worst, has no significant effect on child labor. Consistently with the theory, a comparatively well-educated labor force, and active social policies, appear to be conducive to a reduction in child labor. For countries with a largely uneducated workforce, the problem is not so much globalization, as not being allowed to take part in it.

Children and Pensions

Recent economic explanations of changes in fertility behaviour have focussed on the effects of labour-market-related incentives. The present paper draws attention to another set of incentives, those connected with the transfer of resources over time. The theoretical implications of intergenerational altruism as a possible motive for having children and making transfers to them are considered, and contrasted with those arising from the competing hypothesis that such actions are motivated by old-age-security considerations. From a comparison of these theoretical predictions with the findings of a number of empirical studies, it would appear that self-interested concern for ones old age, rather than any great love for future members of ones dynasty, is or has been so far the dominant force driving fertility and intergenerational transfers worldwide.

Is There a Social Security Tax Wedge

A Beveridgean pension scheme invariably introduces a wedge between the wage rate and the marginal take-home pay. A Bismarckian one can do so only if it is not actuarially fair, or in the presence of credit rationing. Interestingly, if the two possible sources of distortion are present at the same time, they will tend to offset each other. The distortion may even change sign (the wedge may become a premium). In any case, the same pension contribution will discourage labour less if the scheme is Bismarckian, than if it is Beveridgean.

The effects of financial markets and social security on saving and fertility behaviour in Italy.

The paper aims to ascertain the extent to which saving and fertility decisions are affected by the availability and attractiveness of market-based or state-provided alternatives to the family as a source of old-age support. Subordinately, the paper aims to bring evidence to bear on the assumption that fertility is endogenous and jointly determined with saving, and to test two alternative hypotheses about individual motivations. The saving and fertility implications of two alternative models of family choice — based one on the assumption of pure self-interest, the other on that of intergenerational altruism — are first derived theoretically. Saving and fertility equations are then estimated from Italian time-series data, using as explanatory variables the market rate of interest, the social security deficit, various measures of capital market accessibility and social security coverage, and a number of income and wage variables. Particularly worthy of note is the result that a fully-funded increase in social security coverage raises saving, while an increase in the social security deficit has the opposite effect. The empirical findings appear to support the assumption that fertility is endogenous and jointly determined with saving, and to favour the hypothesis that individual decisions are motivated by self-interest rather than intergenerational altruism. Some of the policy implications are briefly discussed in the concluding section.

The Impact of Social Security on Saving and Fertility in Germany

Estimating saving and fertility simultaneously by the VAR method, we find that social security coverage has a positive effect on household saving, and a negative effect on fertility. In Germany, as in other countries where the hypothesis was tested, social security is thus good for growth. A possible explanation for this unconventional finding is that compulsory saving in the form of pension contributions tends to displace intrafamily transfers, rather than conventional asset formation. However, the negative effect of social security on fertility tends to erode the systems own contributory base, because it reduces the number of future contributors. That is one of the reasons why, in Germany as elsewhere, the pay-as-you-go pension system is financially brittle. To some extent, that is counteracted by child-related benefits, which tend to encourage fertility, but some retrenchment on the pension front appears to be unavoidable.

Transfers to families with children as a principal-agent problem

The relationship between government and parents is modelled as a principal-agent problem, with the former in the role of principal and the latter in the role of agents. We make three major points. The first is that, if the well-being of the child depends not only on luck, but also on parental actions that the government cannot readily observe, the latter can influence parental behaviour indirectly, by conditioning transfers on performance. The second point is that, if there are market inputs into the making of a happy or successful child, which the government can observe, but cannot ascribe to any particular parent or child because they are bought anonymously, an income transfer policy can be usefully complemented by an indirect tax policy that systematically distorts prices in favour of these inputs. The third is that, if parents care about their children, insurance and incentive considerations must be tempered by the need to compensate parents who have the misfortune of getting a child with low ability or, more generally, less well equipped to make the most of life. Ways of making these findings operative are discussed in some detail.