Creina Day

The Dynamics of Fertility and Growth: Baby Boom, Bust and Bounce-Back

This paper examines the dynamic interplay between economic growth and fertility as a developed economy moves through two distinct phases: women at home and raising children full time; women entering the work force and raising children part time. Womens relative wages rise with economic growth, as per Galor and Weil (1996). Higher wages make children more affordable. On the other hand, children are more costly when maternal time, used in child rearing, could be supplied to the labor market. I extend Galor and Weil (1996) by introducing goods and services as a child rearing input. A Constant Elasticity of Substitution (CES) production function for child rearing allows for varying degrees of substitutability between goods and time. The existence of an alternative input to maternal time generates a baby boom-bust cycle: fertility rises in the first phase and falls in the second. Whilst fertility declines unambiguously at the beginning of the second phase, as women enter the labor force, it may bounce-back before reaching a steady state as income effects start to dominate.

Economic Growth, Gender Wage Gap and Fertility Rebound

Fertility and per capita income are now positively associated across most high income OECD countries. Low fertility and a gender wage gap persist in Japan. This paper presents a model where endogenous increases in the price of child-care and gender equity in the allocation of capital play important roles in the effect of per capita income growth and rising female relative wages on fertility. Results indicate that a positive relationship between fertility and per capita income is not robust: overall fertility rises with female relative wages if child-care productivity is sufficiently high; female relative wages may not rise with per capita income if men work with increasing capital relative to women.

What Entices the Stork? Fertility, Education and Family Payments

Developed economies, experiencing concomitant declining fertility and rising educational attainment, have introduced policies to boost fertility. We model substitution of bought-in services for parental time in the rearing and education of children in an economy where technological progress leads households to choose fewer, but better educated, children. We analyse the effects on fertility and education of a baby bonus, paid maternity leave and child-care subsidies. We establish conditions under which either maternity or child-care benefits are more efficacious in raising fertility, and we establish that a lump sum baby bonus will increase fertility only if the bonus increases faster than income per capita. Policies that stimulate fertility also raise parental investment in education per child.

Non‐Scale Endogenous Growth with R&D and Human Capital

This paper examines the conditions under which increasing knowledge, encapsulated in ideas for new technology through R&D and embodied in human capital through education, sustains economic growth. We develop a general model where, consistent with recent literature, growth is non-scale (not increasing in population size) and endogenous (generated by factors within R&D and education). Recent models feature the counterfactual assumption of constant returns to existing knowledge and restrict the substitutability of inputs within R&D and education. We find that non-scale endogenous growth is possible under less stringent conditions. Our findings reconcile sustained economic growth with evidence of diminishing marginal returns in education and R&D, which suggests an ambiguous role for R&D policy.

Skill Composition, Fertility, and Economic Growth

While high fertility persists in the poorest countries and fertility declines with per capita income in developing countries, fertility and per capita income are now positively associated across most developed countries. This paper presents a model where a Ushaped relationship between overall fertility and per capita income reflects within country differences in workforce skill composition and household choice of occupation, fertility and childrearing. The fraction of skilled workers rises with economic growth. By allowing for both differences in the fertility of skilled and unskilled workers and purchased childrearing inputs, we explain a poverty trap with high fertility, fertility decline with economic development and the possible reversal of fertility decline in a developed economy where most workers are skilled.

Population and house prices in the United Kingdom

Real house prices rise in the United Kingdom amid growing concern of an impending correction. The rate of household formation has increased with strong population growth, due to elevated rates of natural increase and net migration, and lack of growth in average household size, due to a rise in single‐person households with population ageing. This paper presents an overlapping generations model of housing, endogenous labour, savings and growth to analyse the effect of an increase in the household formation rate and speculative demand under rational expectations on house prices in a general equilibrium. We find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply, but do not follow a speculative bubble path in the long run. The results explain why the upward trend in real house prices reflects market fundamentals and has continued despite population ageing as the number of working and retired households grows relative to the number of older people seeking to sell.

The Effect of Gender Wages and Working Age Populations on Fertility and House Prices

This paper presents an intertemporal model of household choice where endogenous increases in house prices play an important role in the effect of rising female relative wages on fertility. Households save for a deposit in young age, rear children and repay mortgages in middle age and sell housing in retirement. House prices are determined by a market for housing. The outcome from this model is that fertility: i. increases as female wages rise relative to male wages provided the price elasticity in housing supply is sufficiently high; ii. declines as female relative wages rise if housing supply is fixed; iii. declines as the working age to old age population ratio increases provided the housing supply price elasticity is less than the inverse of elasticity of house prices with respect to the support ratio. These results reconcile recent observations that fertility rebounds with rising house prices and female relative wages in several high income economies, but continues to decline in others and provide a novel mechanism whereby past demographic change impacts current fertility through house prices.

Australia's Growth in Households and House Prices: Australia's Growth in Households and House Prices

Real house prices rise in Australia amid growing concern of an impending correction. This article explains why the household formation rate has risen with strong population growth due to higher net immigration and average household size levelling off due to population ageing. An intertemporal model is developed to analyse the effect of an increase in the household formation rate on the housing market. I find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply. Under forward looking expectations, a rising household formation rate could explain rising real house prices relative to the present discounted value of future wages. The results explain why real house prices may exhibit an upward trend despite population ageing and how government planning could have an impact.

Fertility and Housing

Young households in Hong Kong face particularly steep increases in house prices and low fertility despite low gender wage gaps. The model of fertility and housing in this paper explains why fertility decline need not reverse as female wages rise relative to male wages where housing land is scarce. For given house prices, demand for children may rise with female relative wages if housing comprises a sufficiently large share of childrearing. If the user cost of housing falls with rising house prices then fertility also rises. For endogenous house prices, however, growth in wages and a burgeoning working age population raises the market price of housing. In turn, fertility no longer rises with female relative wages. The analysis provides a novel mechanism whereby high population support ratios depress fertility and the results fit recent evidence that house prices affect fertility.

Taxes, Growth and the Current Account Tick-Curve Effect

This paper examines the dynamic and long run effects of a shift from income taxes to consumption taxes in a growing small open economy. We introduce a government sector that maintains a balanced budget and expenditure at a constant proportion of domestic income to a small open economy Swan-Solow model. Our framework provides a previously unidentified dynamic effect that is robust to endogenising the savings rate. Lowering the income tax rate promotes economic growth and has a tick-curve effect on the current account balance, characterised by instantaneous deterioration, a period of recovery and gradual convergence to an improved position in the long run.