Complements versus Substitutes and Trends in Fertility Choice in Dynastic Models

Demographers emphasize decreased mortality and ‘economic development’ as the main contributors generating the demographic transition. Contrary to previous findings, we show that simple dynastic models à la Barro-Becker can reproduce observed changes in fertility in response to decreased mortality and increased productivity growth if the intertemporal elasticity of substitution is low enough. We show that this is largely due to number and welfare of children being substitutes in the utility of parents in this case. We find that with an IES of one-third, model predictions of changes in fertility amount to two-thirds of those observed in U.S. data since 1800.