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Endogenous Fertility, Endogenous Growth and Public Pension System: Should We Switch from a Pay-As-You-Go to a Fully Funded System?

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Author Info
Yoon, Yeopil
Talmain, Gabriel
Abstract

In this paper we study the implications of state pension plan reform on fertility and on growth. We extend the Grossman and Yanagawa endogenous growth framework by incorporating altruism, making fertility endogenous. We investigate the effect on long-run growth of a switch from a pay-as-you-go (PAYG) pension system to a fully funded system. We show that a PAYG pension system is associated with a lower fertility rate than a fully funded system. This lower fertility in turn increases the rate of growth. Hence, switching from a PAYG system to a fully funded system may be harmful, especially for developing countries in which limited resources are heavily stressed by high fertility rates. In addition, we propose a hypothetical pension system, the saving subsidy programme (SSP), which would yield a higher growth rate than the PAYG system. The SSP consists of a minimum benefit level for each retired and of a subsidy to private savings. Copyright 2001 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 69 (2001)
Issue (Month): 5 (Special Issue)
Pages: 586-605
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Handle: RePEc:bla:manchs:v:69:y:2001:i:5:p:586-605

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  1. Michele Boldrin & Maria Cristina De Nardi & Larry E. Jones, 2005. "Fertility and Social Security," Levine's Bibliography 666156000000000506, UCLA Department of Economics. [Downloadable!]
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  2. Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers 0704, University of Vienna, Department of Economics. [Downloadable!]
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