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Optimal parental leave subsidization with endogenous fertility and growth

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  • Siew Ling Yew
  • Shuyun May Li
  • Solmaz Moslehi

Abstract

We examine the growth and welfare effects of parental leave subsidization in a life‐cycle dynastic model with human capital externality. Such externality causes higher fertility, less parental time and expenditure on child human capital, and lower growth and welfare than the efficient levels. Efficient policies require subsidizing work leave, which includes parental leave, and labor income financed by a lump‐sum tax. Calibration based on the U.S. data implies that a fully‐covered leave duration of 7.8 weeks per parent financed by an increase in labor income tax would increase the annual growth rate by 0.06 percentage points and welfare by 0.027%.

Suggested Citation

  • Siew Ling Yew & Shuyun May Li & Solmaz Moslehi, 2024. "Optimal parental leave subsidization with endogenous fertility and growth," Economic Inquiry, Western Economic Association International, vol. 62(1), pages 97-125, January.
    • Handle: RePEc:bla:ecinqu:v:62:y:2024:i:1:p:97-125
    DOI: 10.1111/ecin.13165
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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