Aggregate Fertility and Household Savings: A General Equilibrium Analysis using Micro Data
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.
We thank Mark Aguiar, Paco Buera, Nicolas Ceourdacier, Oded Galor, Mikhail Golosov, Hui He, Jonathan Heathcote, Nobu Kiyotaki, Samuel Kortum, David Lagakos, Costas Meghir, Benjamin Moll, Michael Peters, B. Ravikumar, Mark Rosenzweig, Ananth Seshadri, Todd Schoelman, Yongs Shin, Michael (Zheng) Song, Kjetil Storesletten, Gustavo Ventura, Shangjin Wei, David Weil and Fabrizio Zilibotti for their insights; the participants at the Yale Development Lunch, Yale Macro Lunch, EIEF Lunch Seminar, the conference on Human Capital and Development at the Washington University of St. Louis, the NBER Summer Institute Income Distribution and Macroeconomics, Conference of "China and the West 1950-2050: Economic Growth, Demographic Transition and Pensions" in Zurich, the Symposium on China's Financial Markets, and the NBER China Workshop for comments; and Yu Liu, Jeff Weaver and Xiaoxue Zhao for excellent research assistance. We acknowledge ARC Linkage Grant LP0669728 for funding the RUMiC survey. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.