Capital accumulation,endogenous population growth,and Easterlin cycles

In this paper we attempt to explain the occurrence of population cycles in industrialised economies where the birth rate depends on the difference between the actual and the expected consumption rate. This model of an endogenously growing population brings together Easterlin's idea of an adapting aspiration level with the neoclassical optimal growth paradigm. It is shown that in this highly aggregated demo-economic system (i.e., without inclusion of the age structure of a population) swings both in the economic and demographic variables may exist. The reason behind this strange optimal behaviour is identified to be an intertemporal substitution effect between current and future levels of consumption.We wish to thank A. Novak for helpful assistance and an anonymous referee for useful comments. Financial support by the Austrian Science Foundation under contract No. P6601 is acknowledged.