Abstract
We develop a general equilibrium OLG growth model where women are heterogeneous with respect to the child care costs they bear, there is imperfect information along this dimension and education decisions are endogenous. We show that there is a number of women who have invested in education and find it profitable not to enter the labor market after giving birth to a baby. Their non-participation generates a waste of talent, since the effective output is lower than the potential one as determined by human capital investment. We determine the growth rate of human capital and output and analyze how they depend on the institutional and cultural environment. As a characterization of the institutional environment we study a tax-transfer scheme that can support the education and participation decision and analyze its emergence in a political game. We show that this policy has positive repercussions on growth.
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