War Debt and the Baby Boom

The US government accumulated a large amount of debt from WWII. The government debt-to-GDP ratio in the US peaked at 108% in 1946. This ratio dropped dramatically in the following two decades, to 35% in 1966. Simultaneously, the US experienced a massive baby boom. This paper studies the relationship between these two phenomena in a modified version of the Barro-Becker model. In the model, the government imposes a high temporary income tax rate during the two decades following WWII in order to pay back the war debt. The high temporary income tax rate during this period induces people to increase fertility because it implies a lower after-tax wage and therefore a lower opportunity cost of child-rearing (when child-rearing involves parental time). In a calibrated version of the model, this mechanism generates a substantial baby boom which accounts for 48% of the postwar baby boom in the US.