The role of the government support for education attainment and fertility decisions
Creators: name: Kalinyak, Andrey
Publisher: name: Lancaster University
Year: 2019

description: In this thesis we examine the role of the government policies that target the education and fertility decisions, and their impact on the development of the economy. In the Chapter 1, we provide the motivation for our research in form of literature review that examines the change in the education and fertility choices, and their influence on the social and economic outcomes. In the Chapter 2, we analyse the influence of the flat subsidy rates for education and fertility in the deterministic environment with homogeneous and heterogeneous households. In our analysis, we utilise the OLG model of de la Croix and Doepke (2003), which we extend with the government sector. We consider that the government finances its budget with tax on consumption, labour income and capital income. Our results indicate that subsidy for education produces welfare improvement, but at a cost of a lower population size. For the case with subsidy for fertility, we find the opposite. In the case with initial heterogeneity in the human capital of the households, both subsidy policies result in the outcome with complete equality in the human capital among the households. Finally, the economy achieves the largest welfare improvement with subsidy for education financed with tax on capital income, while the largest welfare loss is recorded with the subsidy for fertility and tax on labour income. In the Chapter 3, we continue the examination of the policies that we consider in the chapter 2. We, however, extend the model of de la Croix and Doepke (2003) further by introducing uncertainty in the human capital formation process. At the average and aggregate levels, majority of our results are in line with the conclusions of chapter 2. However, due to the stochastic nature, the economy does not reach the complete equality in the level of the human capital – instead, the subsidy for education decreases inequality in the distribution of human capital, while the subsidy for fertility increases this indicator. At the individual level, the considered subsidy for education has been found to be ineffective for improving the education of the households from lowest ability groups. Additionally, with the subsidy for fertility, the households from highest ability groups increase the choice for education and fertility simultaneously, which resolves their parental ‘quality-quantity’ trade-off. Finally, in the Chapter 4, we examine the influence of the state-provides compulsory education and childcare, the progressive labour income taxation, and regressive subsidy rate system. We perform our analysis in the environment that is considered for the chapter 3. We find that compulsory education improves the human capital and fertility, and it decreases the inequality in the distribution of the human capital. However, it reduces the private education investment. The introduction of childcare also improves the fertility choices and diminishes private education investment; but the rest of the outcomes are the opposite to the case of compulsory education. Lastly, in comparison to the flat counterparts, the progressive labour income tax scheme and regressive subsidy rates individually result in a population which is more concentrated among the centre of the original distribution. The economy enjoys a relatively larger welfare but not necessary a relatively larger human capital level.