An International Study on the Relationship between Fertility Rate and Income Inequality under the Constraint of Intergenerational Mobility

Lan Jiajun, Wu Chaolin, Yu Lingzheng

Journal of Finance and Economics Vol. 43, Issue 05, pp. 18 - 30 (2017)  DOI:10.16538/j.cnki.jfe.2017.05.002

Abstract

The problems of income inequality and low fertility rate are two major challenges in China nowadays. However, there are few researches about the relationship between demographic factor and income inequality from the perspective of fertility rate and exploring the role of intergenerational income mobility in the academia. This paper theoretically and empirically explores the impact of fertility rate on income inequality. The theoretical analysis shows that an increase in fertility rate will increase the proportion of the poor, thus enlarging the income inequality in an economy under the assumption of the intergenerational income mobility. Furthermore, using a cross-country panel dataset covering 76 countries and regions between 1970 and 2011, our empirical findings show as follows: firstly, an increase in total fertility rate will lead to a rise in income inequality; specifically speaking, if each woman has one more child on average, the Gini coefficient will increase by 0.025; secondly, the results by using the birth rate as a proxy indicator for total fertility rate are identical with the basic results, which mean that different measurement indicators for fertility rate are highly correlated with each other and can be mutually substituted; thirdly, total fertility rate has a greater impact on income inequality in countries with higher level of intergenerational income mobility elasticity, lower level of income, or higher level of total fertility rate. The analysis of the mechanism and heterogeneous characteristics of the effect of fertility rate on income inequality provides international experience and enlightenment for how to deal with the serious income distribution issue under the universal two-child policy.

Keywords

income inequality; intergenerational income mobility; total fertility rate; birth rate