Scandinavian Working Papers in Economics

CAFO Working Papers,
Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics

No 2009:5: Low fertility and long run growth in an economy with a large public sector

Jovan Zamac (), Daniel Hallberg () and Thomas Lindh ()
Additional contact information
Jovan Zamac: Institute for Future Studies, Postal: Institute for Futures Studies, Box 591, 101 31 Stockholm, SE 351 95 Växjö, Sweden
Daniel Hallberg: Institute for Future Studies, Postal: Institute for Futures Studies, Box 591, 101 31 Stockholm
Thomas Lindh: Centre for Labour Market Policy Research (CAFO), Postal: Centre for Labour Market Policy Research (CAFO), Dept of Economics and Statistics, School of Management and Economics, Växjö University , SE 351 95 Växjö, Sweden

Abstract: Recently it has been suggested that low fertility countries may be caught in a trap that is hard to get out of. One important mechanism in such a trap would be social interaction and its effect on the ideal family size. Such social interaction mechanisms are hard to capture in formal models, therefore we use an agent based simulation model to investigate the issue. In our experimental setup a stable growth and population path is calibrated to Swedish data and using the Swedish social policy setup. The model is provoked into a fertility trap by increasing relative child costs linked to positive growth. Even rather large increases in child benefits are then insufficient to get out of the trap. However, the small number of children temporarily enables the economy to grow faster for several decades. Removing the adaptation of social norms turns out to disarm the trap.

Keywords: Low fertility trap; Social norms relative income; Economic growth

JEL-codes: J13; O40

24 pages, December 7, 2008

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