Barro-Becker with Credit Frictions
Juan Cordoba and
Marla Ripoll ()
Staff General Research Papers Archive from Iowa State University, Department of Economics
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)
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Working Paper: Barro-Becker with Credit Frictions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:35532
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