Dissertations

In a real economy, decisions on investments in the human capital of children are made by families rather than by atomistic parents as is typically assumed in the literature. The first chapter of this dissertation incorporates family formation into an otherwise standard dynastic framework with human capital accumulation. The study finds that accounting for differences in taxation and education policies between the U.S. and 10 OECD countries is sufficient to replicate cross-country variations in the degree of assortative matching and its positive correlation with the intergenerational persistence of earnings. Positive assortative matching is crucial to a model's ability to generate realistic levels of the intergenerational earnings correlations observed in the data.

In the second chapter, I develop a simple dynastic model in the style of Barro and Becker (1989), with endogenous fertility and human capital accumulation, to quantify the optimal progressivity of higher education subsidies. I find that the optimal policy is characterised by a higher degree of progressivity than current U.S. education subsidies. Additionally, the relations between the degree of progressivity of education policies and welfare/ population growth are hump-/ U-shaped respectively. While an assumption of endogenous fertility is quantitatively important, heterogeneity in fertilities is sufficient to generate these results. This is because welfare gains from more progressive subsidies are driven not only by decreases in the fertility rates of low income individuals, but also because their children frequently relocate to states associated with higher incomes and relatively lower fertility rates.

In the third chapter, I study a politico-economic dynamic general equilibrium model to quantify the importance of endogenous fertility in explaining the generosity of redistribution and education policies in the U.S. Policies are endogenised as outcomes of majority voting. I find that accounting for endogenous fertility is essential for strong performance of the model in matching the levels of both transfers and education subsidies in the U.S. economy. The predictions of the model for a cross-section of U.S. states are used to verify the plausibility of the finding that fertility decisions respond to policies.