Public education, fertility incentives, neoclassical economic growth and welfare

Using a simple overlapping generations model of neoclassical growth, we analyse the effects of both child allowances and the system of public education on the rate of fertility, the per capita income and the individual lifetime welfare. The essential message of the present paper is that developed countries plagued by below-replacement fertility and income stagnation may raise per capita income and the rate of fertility at the same time by increasing the public education expenditure rather than by resorting to child allowances. The latter, in fact, are found to be harmful for long-run neoclassical economic growth and, in contrast with the common belief, for the rate of population growth as well. Moreover, welfare analysis has shown the existence of a Pareto-efficient welfare-maximizing educational contribution rate.