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The One-Child Policy and Household Savings

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Abstract

We investigate how the `one-child policy' has impacted China's household saving rate and human capital in the last three decades. In a life cycle model with endogenous fertility, intergenerational transfers and human capital accumulation, we show how fertility restrictions provide incentives for households to increase their offspring's education and to accumulate financial wealth in expectation of lower support from their children. Our quantitative OLG model calibrated to household level data shows that the policy significantly increased the human capital of the only child generation and can account for a third to 60% of the rise in aggregate savings. Equally important, it can capture much of the distinct shift in the level and shape of the age-saving profile observed from micro-level data estimates. Using the birth of twins (born under the one child policy) as an exogenous deviation from the policy, we provide an empirical out-of-sample check to our quantitative results; estimates on savings and education decisions are decidedly close between model and data.
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hal-03460407 , version 1 (01-12-2021)

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Taha Choukhmane, Nicolas Coeurdacier, Keyu Jin. The One-Child Policy and Household Savings. 2014. ⟨hal-03460407⟩
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