The importance of family: a macroeconomic perspective

An excess of economic phenomena cannot be explained without explicitly studying the within family decision making. Questions regarding human capital accumulation, inequality, or consequences of fertility changes call for a framework that goes beyond the traditional macroeconomic analysis (i.e., labor, consumption, and saving choices) and incorporates interactions within the family. In this paper, we make a critical review of modeling the relations between the decisions within households and the macroeconomic processes. This literature unequivocally demonstrates that interactions within families are pivotal in explaining many economic regularities. We summarize the key results in the literature, and we elaborate on the differences across the macroeconomic models that result in the diversity of the results. Among the most consistently emerging results, we identify the following: (i) policy tools aiming to equalize opportunities for early schooling or rights on the labor market across the income distribution or gender universally improve welfare; (ii) eliminating family dependent components of the pension system also improves welfare; (iii) the scope of risk-sharing within the family strongly depends on the size of the welfare state; (iv) child-related transfers may help bring fertility to the social optimum, whereas transfers in-kind, e.g., child care, are more effective than cash transfers. 

This chapter is a part of volume "Pensions today - economic, managerial, and social issues" edited by Filip Chybalski and Edyta Marcinkiewicz.