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Italy's demographic trap: voting for childcare subsidies and fertility outcomes

Katerina Koka and Chiara Rapallini

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: In this paper we study how population aging impacts the age distribution of the voting electorate and voters’ choices over childcare subsidies. We build a computable general equilibrium framework populated by heterogenous agents who, over the course of their life-cycle, make endogenous and age-dependent fertility choices. The model is calibrated to match economic and population outcomes of the Italian economy. Child support favors young and fertile cohorts but can also impact all population subgroups through changes in prices, income taxation and population growth. A probabilistic voting model is used to measure voting outcomes over a range of childcare subsidy levels and tax policies. Our findings show that childcare subsidies have a positive impact on the total fertility rate and are welfare improving when financed with both capital and labor income taxation and in combination with lower pension contribution rates. A 10 percent increase in the level of subsidies can increase the population growth rate by an average of 0.47-0.70 percentage points. We find that voting choices of different population subgroups, while depending on the tax used to finance new expenditure, lead to lower levels of childcare subsidies, lower fertility rates and to a demographic 'trap'.

Keywords: Endogenous fertility; childcare subsidies; aging population, voting (search for similar items in EconPapers)
JEL-codes: D72 J11 J13 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022
New Economics Papers: this item is included in nep-age and nep-dem
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Journal Article: Italy’s demographic trap: Voting for childcare subsidies and fertility outcomes (2023) Downloads
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