Child policy ineffectiveness in an OLG small open economy with human capital accumulation and public education

Motivated by the recent decrease in the number of children experienced in many developed countries, in this paper we consider an OLG small open economy with endogenous fertility and human capital formation through public education and look at the role the government can play in affecting fertility rates through the widely used child allowance policy. Contrary to the conventional wisdom, we show that child allowances do not affect fertility. The policy implication is that the public provision of child allowances is not effective as a pro-natalist policy, while also reducing human capital accumulation. In contrast, enhancing the public provision of education is beneficial for both fertility and human capital.