Status Externalities and Low Birth Rates in Korea

East Asians, especially South Koreans, appear to be preoccupied with their offspring's education—most children spend time in expensive private institutes and cram schools the evenings on weekends. At same time, Korea currently has lowest total fertility rate world. In this paper, we propose a theory status externalities endogenous that connects these two facts. Using quantitative heterogeneous-agent model calibrated Korea, find would 16% higher absence of externality. Furthermore, childlessness poorest quintile fall from five less than one percent. We then explore effects various government policies. A pro-natal transfer increases reduces education while an tax both fertility, heterogeneous across income distribution. The policy mix maximizes current generation's welfare consists 12% moderate transfers—a monthly child allowance 3% average for 18 years. This raise by about 5% decrease spending 16%. Although generation, it may not do future generations as lowers human capital.