Capital Accumulation, Income Distribution and Endogenous Fertility in an Overlapping Generations General Equilibrium Model

This paper studies the intertemporal relationships among population growth, income distribution, inter-generational social mobility, skill composition of the labor force, and household income in an overlapping generations general equilibrium model that aggregates household decisions regarding fertility, savings and investment in human capital of children. It shows that as a consequence of endogenous fertility, the equilibrium path attains steady state from the second generation. Income tax transfer, child taxation, and social security taxation policies that can be devised to affect these variables are also analyzed. The model provides a structural explanation for the inverse household income-child quantity and negative child quality-quantity relationships that are observed in developing countries. It also shows that group interests may hinder the emergence of perfect capital markets with private initiatives