Working Paper: NBER ID: w20050
Authors: Abhijit Banerjee; Xin Meng; Tommaso Porzio; Nancy Qian
Abstract: This study uses micro data and an overlapping generations (OLG) model to show that general equilibrium (GE) 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 (PE), increased fertility lowers household savings. Then, we construct an OLG model that parametrically matches the PE empirical evidence. Finally, we extend the model to conduct a GE analysis and show that under standard assumptions and with the parameters implied by the data, GE forces can substantially offset the PE effects. Thus, focusing only on the PE can substantially overstate the effect of aggregate fertility on household savings.
Keywords: fertility; household savings; general equilibrium; microdata; China
JEL Codes: J11; J13; O11; O12; O4; O53
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) |
| increased fertility (J13) | increased future interest rates (E43) |
| increased fertility (J13) | slower wage growth (J39) |
| increased future interest rates (E43) | increased household savings (D14) |
| slower wage growth (J39) | increased household savings (D14) |
| increased fertility (J13) | complex impact on savings (D14) |