Barro-Becker with Credit Frictions

Juan Cordoba and Marla Ripoll

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The Barro-Becker model of fertility has three controversial predictions: (i) fertility and schooling are independent of family income; (ii) children are a net financial burden to society; and (iii) individual consumption is negatively associated to individual income. We show that introducing credit frictions into the model helps overturn these predictions. In particular, a negative relationship between fertility and individual wage income can be obtained when the intertemporal elasticity of substitution is larger than one. The credit constrained model can also explain the quantity-quality trade-off: individuals with higher wage income choose more schooling and fewer children.

Keywords: Fertility; credit frictions; parental altruism; elasticity of intertemporal substitution (search for similar items in EconPapers)
JEL-codes: D J (search for similar items in EconPapers)
Date: 2012-10-05
New Economics Papers: this item is included in nep-dem and nep-dge
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http://www2.econ.iastate.edu/papers/p15531-2012-10-05.pdf (application/pdf)

Related works:
Working Paper: Barro-Becker with Credit Frictions (2012)
Working Paper: Barro-Becker with credit frictions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:35531

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