How does the effect of child mortality reductions on fertility and education\ud vary across educational systems? To answer this question, we develop\ud an overlapping-generations model where altruistic parents care about both the\ud number and human capital of their surviving children. We find that, under a\ud private education system, if income is low initially, the economy converges to\ud a Malthusian stagnation steady state. For a high level of initial income, the\ud economy reaches a growth path in which children’s education rises and fertility\ud decreases with income. In the growth regime under private education, exogenous\ud shocks that lower child mortality are detrimental for growth: fertility\ud increases and education declines. In contrast, under a public education system,\ud the stagnation steady state does not exist, and health improvement shocks are\ud no longer detrimental for growth. We therefore offer a new rationale for the\ud introduction of public education

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In this paper, we analyze the effects of demographic change on a pay-as-you-go (PAYG) pension system, financed with a defined contribution scheme. In particular, we examine the relationship between retirement, fertility, and pensions in a three-period overlapping generations model. We focus on both the case of mandatory retirement and the case where the retirement age is freely chosen. In the case of mandatory retirement, increasing longevity has an unambiguously negative impact on fertility and pension payouts and a positive effect on the level of physical capital in the steady state. On the other hand, when agents choose the time of retirement, an increase in life expectancy positively affects physical capital only when the tax rate is sufficiently low and can have a positive impact on pension benefits, because agents may find it optimal to retire later and to decrease fertility less. Finally, the effects of the social security tax on capital per worker are negative with mandatory retirement; however, they could be positive in the optimal retirement case.

This paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period of life and live in retirement in old age. Health spending is an activity that increases quality of life and longevity. Empirical evidence shows that both health spending and saving behave as luxury goods but their behaviour differs markedly according to the level of per capita GDP. The share of saving on GDP has a concave shape with respect to per capita GDP, whereas the share of health spending on GDP increases more than proportionally with respect to per capita GDP. The ratio of saving to spending is nonlinear with respect to income, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the utility function with respect to saving and the elasticity of the utility function with respect to health.

In this paper, we study the relationship between changes in the world interest rate and within-country inequality during the 1985–2005 period in which the world interest rate sharply declined. In line with the predictions of the seminal model of Galor and Zeira [Income distribution and macroeconomics. Review of Economic Studies 60, 35–52], the analysis suggests that the decrease in the world interest rate is associated with a decrease in inequality in poor countries and an increase in inequality in rich ones.