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    Macroeconomic consequences of the 'new home economics'.

    Cigno A

    In: Economics of changing age distributions in developed countries, edited by Ronald D. Lee, W. Brian Arthur and Gerry Rodgers. Oxford, England, Clarendon Press, 1988. 139-50. (International Studies in Demography)

    This chapter examines the consequences of grafting an economic theory of fertility on to a simple model of economic growth. Our 1st discovery was that the existence of a sustainable equilibrium with growing per capita income imposes certain local restrictions on the form of the utility function. By exploiting those restrictions, the author was able to derive conclusions about the effects of government intervention on the long-term behavior of the model economy. The most striking of those conclusions was that a policy of taxing income and redistributing the proceeds to families in proportion to the number of children would increase income, consumption, and the number of children per adult, but would permanently reduce the amount spent on each child. By contrast, income taxation would have no macroeconomic effects, no matter how the proceeds were spent, if population were exogenous. Strong results obtained with a highly stylized model must be taken with the proverbial pinch of salt, particularly so when they concern complex phenomena like fertility. But the approach followed in this discussion, namely inferring the properties of the utility function from the conditions for a sustainable equilibrium and then seeing how these properties affect the comparative statics and dynamics of the system, appears to be promising. It might even be that some of the steady-state results would carry over to models with a variable saving rate and a more detailed age structure.
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