Child quality choice and fertility disincentives

This paper analyses the effects of the introduction of child-subsidy support policies extending recent overlapping generations (OLG) models to account for endogenous fertility decisions of individuals and publicly provided pensions in a small open economy with preferences for both child quantity and child quality. It is shown that if the preference for the quality of children is higher than the preference for the quantity of children, as casual observations seem to reveal in developed countries, then child subsidies always reduce the fertility rate. This way, the article provides an explanation for possible failures of pro-natalist policies based on child subsidisation implemented in many western countries, which may therefore result as fertility disincentives instead of fertility incentives.