National welfare implications of regional childcare policy: A theoretical approach

Abstract

This study examines the effects of regional childcare policy on regional and total fertility, interregional migration, capital accumulation, and welfare. The study utilizes an overlapping generations model with endogenous fertility and two asymmetric regions; one region has children who do not have access to childcare facilities, whereas the other region does not. In this setting, Hashimoto and Naito (2023) showed that a regional childcare policy can increase both regional and total fertility. However, they did not refer to welfare effects. As the government’s ultimate objective is to maximize or improve social welfare, it need not necessarily focus on overcoming declining fertility rates. Therefore, this study explores whether the childcare support policy of Hashimoto and Naito (2023) has improved the social welfare of the economy. Under a plausible rate of labor income share, the childcare support policy raises consumption owing to a decrease in capital accumulation. Thus, childcare support policy increases social welfare when the fertility rate rises or is unaffected, and it does not necessarily increase social welfare if it causes a decline in the fertility rate.

Keywords

• childcare policy
• welfare
• fertility
• overlapping generations model
• capital accumulation