Technical Report Population Density, Fertility, and Childcare Services From the Perspective of a Two-Region Overlapping Generations Model

Ishida, Ryo  ,  Oguro, Kazumasa  ,  Yasuoka, Masaya

2015-06 , Institute of Economic Research, Hitotsubashi University
In countries confronting the issue of low fertility, as Japan is, dual trends showing higher regional population density associated with lower fertility rates are being confirmed. It is therefore an important theme for analysis to deepen discussions related to reducing regional fertility disparities by increasing fertility through the implementation of comprehensive childcare support policies, which might facilitate the striking of a balance between child-rearing and work, even in highly populated regions. As described herein, we constructed a simple theoretical two-region Overlapping Generations (OLG) by incorporating migration and land prices. Using it, we analyzed effects of population density and childcare services on fertility. Results elucidated the following three points. First, in the presence of congestion costs associated with increased population density, the fertility rate of the region decreases with increased population density. However, if the time cost of child-rearing is brought down by raising the level of the childcare services provided in the region, then the effect of increased population density on fertility can be restrained. Second, when the effect of population size on productivity is less than a certain level, improvement in the childcare services raises the relative ratio of the population density. When the effect of population size on productivity exceeds a certain level, however, the relative ratio of the population density decreases if the relative ratio of the time cost of child-rearing decreases as a result of childcare service reform. Third, where each region imposes payroll tax on its residents and uses its tax revenue as the financial resources to adopt a decentralized strategy of providing childcare services to its region, the level of childcare services that maximizes the utility of a representative agent in each region is independent of the childcare services of any other region. Therefore, manipulation of the level of childcare services becomes a dominant strategy.

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