On high fertility rates in developing countries: birth limits, birth taxes, or education subsidies?

Abstract

In this paper, we consider two types of population policies observed in practice: birth limits and birth taxes. We find that both achieve very similar equilibrium solutions if tax revenue finances lump-sum transfers. By reducing fertility and promoting growth, both birth policies may achieve higher welfare than conventional education subsidies financed by income taxes. A birth tax for education subsidies can achieve the first-best solution. The welfare gain of the first-best policy may be equivalent to a massive 10-50% rise in income, depending on the degree of human capital externalities and the elasticity of intertemporal substitution.