Aggregate Fertility and Household Savings: A General Equilibrium Analysis using Micro Data

Abhijit Banerjee, Xin Meng, Tommaso Porzio, Nancy Qian

NBER Working Paper No. 20050
Issued in April 2014
NBER Program(s):   DEV   EFG

This study uses micro data and an overlapping generations (OLG) model to show that general equilibrium (GE) forces are critical for understanding the relationship between aggregate fertility and household savings. First, we document that parents perceive children as an important source of old-age support and that, in partial equilibrium (PE), increased fertility lowers household savings. Then, we construct an OLG model that parametrically matches the PE empirical evidence. Finally, we extend the model to conduct a GE analysis and show that under standard assumptions and with the parameters implied by the data, GE forces can substantially offset the PE effects. Thus, focusing only on the PE can substantially overstate the effect of aggregate fertility on household savings.

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Document Object Identifier (DOI): 10.3386/w20050

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