War Debt and the Baby Boom

Kai Zhao

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, I argue that an important cause of the postwar baby boom in the US was the dramatic reduction in government debt (via income taxation) in the two decades following WWII. A reduction in government debt (via income taxation) increases fertility by changing the tax burden of different generations. A higher current income tax increases fertility by lowering after-tax wage and therefore the opportunity cost of child-rearing (when the cost of child-rearing involves parental time). A lower government debt level implies a lower tax burden on children in the future and thus a higher lifetime utility for them, which also increases current fertility if parents have Barro-Becker type preferences (the children's utility is included in the parents' utility function). The United States government accumulated a large amount of debt from WWII. The debt-GDP ratio peaked at 108% in 1946, and the debt level was reduced significantly (via taxation) in the following two decades. The debt-GDP ratio was only 35% in 1966. In a quantitative Barro-Becker model with government debt, I show that a reduction in government debt (financed by income taxation) such as the one experienced by the postwar US can generate a significant increase in fertility, which in magnitude accounts for 48% of the postwar baby boom in the US.

Keywords: Fertility; Baby boom; Government debt; WWII (search for similar items in EconPapers)
JEL-codes: E0 E62 J11 (search for similar items in EconPapers)
Date: 2011-07-22
New Economics Papers: this item is included in nep-dem and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: War Debt and the Baby Boom (2009)
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