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This paper investigates the impact of low fertility on long-term capital accumulation and economic welfare. We …nd that the impact di¤ers according to whether the low fertility arises from a decrease in the intensive or extensive margin of fertility. We show that an increase in the intensive margin of fertility decreases the capital stock and economic welfare. Conversely, we identify a U-shaped relationship between the extensive margin of fertility and the capital stock because of the existence of two opposing e¤ects, such that the decline in fertility may reduce economic welfare. Furthermore, we show that an intragenerational income redistribution policy can eliminate the welfare loss resulting from the incomplete market.

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