Discussion Paper No.1410

Abstract :
We investigate the interaction between environmental quality and fertility in an altruistic bequest model with pollution externalities created by the aggregate production. Despite the negative externality related to the endogenous childbearing decisions, the parents may choose to have fewer children in the competitive economy than in the social optimum. To achieve optimality, positive taxes on childbearing are required even with an insufficient number of children, if the social discount factor equals the parents’ degree of altruism. On the other hand, child allowances constitute the optimal policy if the social discount factor exceeds the parents’ degree of altruism and is assigned equally among parents and children.

Keywords : Externality; Environmental quality; Fertility; Altruism; Bequest; Child allowances