Child-care Policies and Pension in an Endogenous Fertility Model

Some economically developed countries are suffering from an aging society with fewer children, which has brought about greater burdens imposed by social security. A child allowance and child-care services are provided by the governments in these countries to raise fertility. An increase in fertility pulls up the future labor population. An increase in labor population can subsequently provide sufficient social security benefits in terms of pensions and other transfers. This paper presents consideration of three child-care policies. The first is child allowances. The second is a subsidy for child-care services. The third is a subsidy for child care in the home. These three policies can raise fertility and the future labor population. This paper presents results of a derivation showing that child allowances can raise both the demand for child-care services and child care in the home. Therefore, fertility can always rise. However, a decrease in labor supply time has the effect of reducing the pension benefit. With large substitution between child-care services and child care in the home, the subsidy for child-care services or child care in the home can reduce fertility. Then, the pension benefit can not always increase.