Working Paper: CEPR ID: DP9935
Authors: Abhijit Banerjee; Xin Meng; Tommaso Porzio; Nancy Qian
Abstract: This study uses micro data and an OLG model to show that general equilibrium forces are critical for understanding the relationship between aggregate fertility and household savings. First, we document that parents perceive children as an important source of old-age support and that in partial equilibrium, increased fertility lowers household savings. Then, we construct an OLG model that parametrically matches the partial equilibrium empirical evidence. Finally, we extend the model to conduct a general equilibrium analysis and show that under standard assumptions and with the parameters implied by the data, general equilibrium forces can substantially offset the partial equilibrium effects. Thus, focusing only on partial equilibrium effects can substantially overstate the effect of a change in aggregate fertility on households savings.
Keywords: demographic structure; fertility; savings
JEL Codes: J11; J13; O11; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased fertility (J13) | Lower household savings (D14) |
| General equilibrium forces (D50) | Offset negative effects of fertility on savings (D15) |
| Increased fertility (J13) | Anticipated rise in interest rates (E43) |
| Increased fertility (J13) | Slowdown in wage growth (J39) |
| Anticipated rise in interest rates + Slowdown in wage growth (E49) | Influence on savings behavior (D14) |