The Interaction between Endogenous Fertility and Inequality in the Political Economy

We simulate a two-period overlapping generations model with heterogeneous agents. Parents receive utility from the quantity and quality of their offspring. An increase in the wage rate leads to higher opportunity costs of child-rearing time, thus implying lower fertility and higher quality per child. This causes intergenerational persistence in fertility decisions and wages. Controlling for the initial distribution of wealth, we show that economic growth increases inequality and fertility differentials. Furthermore, we endogenize redistribution by implementing a median voter system. Due to fertility differentials, the median voter moves from higher to lower income percentiles.