Growth and Bubbles: The Interplay between Productive Investment and the Cost of Rearing Children

Xavier Raurich and Thomas Seegmuller

Working Papers from HAL

Abstract: As it is documented, investment of households in human capital is negatively related to the number of children individuals will have and requires some loans to be financed. We show that this negative relationship contributes to explain episodes of bubbles that are associated to higher growth rates. This conclusion is obtained in an overlapping generations model where agents choose to invest in a productive asset, that can be interpreted as human capital, and decide their number of children. A bubble allows to smooth consumption and expenses over the life-cycle, and can therefore be used to finance either productive investment or the cost of rearing children. The time cost of rearing children plays a key role in the analysis. If the time cost per child is sufficiently large, households have only a small number of children. The bubble then has a crowding-in effect because it is used to finance productive investment. On the contrary, if the time cost per child is low enough, households have a large number of children. Then, the bubble is mainly used to finance the total cost of rearing children and has a crowding-out effect on investment. Therefore, the new mechanism we highlight shows that a bubble enhances growth only if the economy is characterized by a high rearing time cost per child.

Keywords: fertility; bubble; sustained growth (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-dge
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01563555
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Working Paper: Growth and Bubbles: The Interplay between Productive Investment and the Cost of Rearing Children (2017)
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