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Barro-Becker with Credit Frictions

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  • Cordoba, Juan Carlos
  • Ripoll, Marla

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.

Suggested Citation

  • Cordoba, Juan Carlos & Ripoll, Marla, 2012. "Barro-Becker with Credit Frictions," Staff General Research Papers Archive 35532, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:35532
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    Cited by:

    1. Marla Ripoll & Juan Carlos Cordoba, 2011. "A Contribution to the Economic Theory of Fertility," 2011 Meeting Papers 1207, Society for Economic Dynamics.

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    More about this item

    Keywords

    Fertility; credit frictions; parental altruism; elasticity of intertemporal substitution;
    All these keywords.

    JEL classification:

    • D - Microeconomics
    • J - Labor and Demographic Economics

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