Want more babies? Reduce public debt

Western economies face three major challenges: a major drop in fertility, public debt and climate change. It turns out the first two are linked. Fanti Luciano and Spataro Luca show this using an overlapping generation model with endogenous fertility, as parents value the number of children (but not their welfare).

One would want to have more children if that allows to increase the burden of future generations for immediate gain. But this effect should not be significant for public debt, as it is diluted among many people. However, having high public debt, and thus high future taxes, may reduce sufficiently the welfare of future generations that one would want to have fewer kids, as it becomes more difficult to bequest them with sufficient funds to pay the taxes.

This argument is only valid if parents care about their kids, but this is not the case in this paper. Instead, it is all about the cost of raising kids and how it influences fertility choices through the relationship between the interest rate and the fertility rate. But this all assumes that children are normal goods. Things are not that simple. Rich people do not necessarily want more children, they want better children, we know this at least since Becker. Tractability may be lost, but realism is gained.