Money, child quantity-quality tradeoff, growth and welfare in a Schumpeterian model with status-seeking in human capital

Qichun He ()
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Qichun He: Central University of Finance and Economics

Journal of Economics, 2025, vol. 145, issue 3, No 3, 263-293

Abstract: Abstract This paper models human capital in the utility function as status-seeking. We find that, when the status-seeking in human capital is strong, monetary expansion increases fertility and time allocated to education (no child quantity-quality tradeoff) but decreases work time in production and R&D. As a result, the increase in the growth rate of human capital accumulation may offset the decrease in the growth rate of technology. Both growth and welfare are decreasing in the nominal interest rate. By contrast, without the status-seeking in human capital, there is a quantity-quality tradeoff for children under monetary expansion: a higher nominal interest rate increases fertility at the expense of lower education time, leaving work (production and R&D) time unchanged. Growth is decreasing in the nominal interest rate but welfare is an inverted-U function of the nominal interest rate. Cross-country panel data regression finds that inflation has a negative effect on education if the preference for human capital is relatively weak and a positive effect on education if the preference for human capital is strong enough, which provides support of our theory.

Keywords: Status-seeking in human capital; Cash-in-advance; Schumpeterian model; Child quantity-quality tradeoff; Growth and welfare; Panel data (search for similar items in EconPapers)
JEL-codes: E52 O42 O47 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:145:y:2025:i:3:d:10.1007_s00712-025-00901-5

DOI: 10.1007/s00712-025-00901-5

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