FERTILITY, GROWTH AND THE FINANCING OF PUBLIC-EDUCATION AND HEALTH

This paper considers the implications of the financing of government s ervices to children when fertility decisions are endogenously determin ed. In particular, it is shown that when the services are financed by taxation, the equilibrium outcome is biased away from the socially pre ferred result. The bias results in higher fertility rates and lower ec onomic growth rates than the efficient social optimum. This arises bec ause each household internalizes the benefits, but not the costs of th e tax-financed services. We consider alternative methods of financing the public provision of services and find that a combination of taxati on and vouchers can eliminate the bias in the equilibrium outcome.