Social Security, Endogenous Fertility and the Optimal Family Size

This note analyzes a model of endogenous fertility in the presence of financial market assets and social security pensions. Given the children externality, the fertility rate chosen in a market economy is too low compared to the Social Optimum, asking for a corrective policy. Indeed, the representative household does not take into account this children externality which leads to a suboptimal family size. We show that an optimal demographic allocation can be implemented through a subvention taxation policy.