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Low Fertility and Long-Run Growth in an Economy with a Large Public Sector

Fécondité basse et croissance à long terme dans une économie à secteur public très développé

European Journal of Population / Revue européenne de Démographie Aims and scope Submit manuscript

Abstract

Recently it has been suggested that low fertility countries may be caught in a trap that is hard to get out of. One important mechanism in such a trap would be social interaction and its effect on the ideal family size. Such social interaction mechanisms are hard to capture in formal models, therefore we use an agent-based simulation model to investigate the issue. In our experimental setup a stable growth and population path is calibrated to Swedish data using the Swedish social policy setup. The model is provoked into a fertility trap by increasing relative child costs linked to positive growth. Even rather large increases in child benefits are then insufficient to get out of the trap. However, the small number of children temporarily enables the economy to grow faster for several decades. Removing the adaptation of social norms turns out to disarm the trap.

Résumé

Il a été suggéré récemment que les pays à basse fécondité pourraient être victimes d’un piège dont ils auraient du mal à se dégager. Un mécanisme essentiel dans ce piège serait l’interaction sociale et son effet sur la taille idéale de famille. Des mécanismes de ce type sont difficiles à représenter dans un modèle formel, et c’est pourquoi nous avons eu recours à un modèle de simulation multi-agents pour explorer le processus. Dans notre dispositif expérimental, un modèle de croissance et de population stable est calibré aux données suédoises, en utilisant la configuration suédoise de politique sociale. Le modèle est entraîné dans un piège de fécondité en élevant les coûts relatifs de l’enfant en lien avec la croissance positive. Dans ce cas, même des augmentations importantes des prestations familiales sont insuffisantes pour sortir du piège. Toutefois, le petit nombre d’enfants permet temporairement à l’économie de croître plus rapidement pendant quelques décennies. L’arrêt de l’adaptation aux normes sociales conduit à une neutralisation du piège.

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Notes

  1. Myrskylä et al. (2008) find a U-shaped relation between a Human Development Index (HDI) and fertility. While an HDI weighs in GDP per capita as one factor, this is not the same as GDP growth.

  2. We have also used some data from the Swedish National Transfer Accounts. See Lee and Mason (2004) about National Transfer Accounts that track intergenerational flows in an economy.

  3. The efficiency of social policies in increasing fertility is still an open issue. While Feyrer et al. (2008), Björklund (2006), and others have estimated large effects there are other studies like OECD (2003) and Grant et al. (2004) which find that income-related policies have limited effects on fertility.

  4. The data come from the Swedish micro data set HUS (See Klevmarken and Olovsson 1993; Flood et al. 1996), which is a representative sample of about 3,000 individuals which we scale to obtain our desired number of individuals in the initial year of simulation. In the first period of the model, we also introduce some initial aggregate variables (such as mortality rates) from Statistics Sweden.

  5. The pension system is modeled according to the new Swedish pension system except that we have a fixed retirement age at 65 and we do not have any funded part. We only model the pay-as-you-go component which in reality comprises about 87% of the total public coverage.

  6. All the alternative scenarios are programmed in such a way that perfect replication of the base scenario is attained, up to a point when a change of arbitrary choice (such as the change in child cost) is brought into play. This means that the initial random components in the model are exactly identical in all the scenarios. Thus the alternatives can be interpreted as counter-factual to the base scenario.

  7. This is possible since we have no labor supply choice and people do not die of starvation when their income is confiscated. Also note that the taxes are redistributed. In practice, the 100% tax rate should be interpreted as the collapse of the system.

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Acknowledgments

We greatly appreciate comments from two anonymous referees as well as Vegard Skirbekk and other participants in The International Conference on the Economic Consequences of Low Fertility in St. Gallen April 2008. We are very grateful to Matias Eklöf, Gustav Öberg, and Elisa Baroni who have programmed the simulation model IFSIM, and who with great patience implemented the experiments this article built on. Funding from the Swedish Research Council is gratefully acknowledged.

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Correspondence to Thomas Lindh.

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Žamac, J., Hallberg, D. & Lindh, T. Low Fertility and Long-Run Growth in an Economy with a Large Public Sector. Eur J Population 26, 183–205 (2010). https://doi.org/10.1007/s10680-009-9184-z

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