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Fertility, human capital accumulation, and the pension system

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  • Cremer, Helmuth
  • Gahvari, Firouz
  • Pestieau, Pierre

Abstract

This paper provides a unified treatment of externalities associated with fertility and human capital accumulation within pay-as-you-go pension systems. It considers an overlapping generations model in which every generation consists of high earners and low earners with the proportion of types being determined endogenously. The number of children is deterministically chosen but the children's future ability is in part stochastic, in part determined by the family background, and in part through education. In addition to the customary externality source associated with a change in average fertility rate, this setup highlights another externality source. This is due to the effect of a parent's choice of number and educational attainment of his children on the proportion of high-ability individuals in the steady state. Our other results include: (i) Investments in education of high- and low-ability parents must be subsidized; (ii) direct child subsidies to one or both parent types can be negative; i.e., they can be taxes; (iii) net subsidies to children (direct child subsidies plus education subsidies) to at least one type of parents must be positive; (iv) parents who have a higher number of children should invest less in their education.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 11 ()
Pages: 1272-1279

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:11:p:1272-1279

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Pay-as-you-go social security; Endogenous fertility; Education; Endogenous ratio of high to low-ability types; Three externality sources; Education subsidies; Child subsidies;

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References

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  1. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, 2006. "Pensions with heterogenous individuals and endogenous fertility," CORE Discussion Papers 2006015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2011. "Fertility, human capital accumulation, and the pension system," Journal of Public Economics, Elsevier, vol. 95(11), pages 1272-1279.
  3. Robert Fenge & Volker Meier, 2005. "Pensions and fertility incentives," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 28-48, February.
  4. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2006. "Pensions with endogenous and stochastic fertility," Journal of Public Economics, Elsevier, vol. 90(12), pages 2303-2321, December.
  5. G. ABIO & Géraldine MAHIEU & C. Patxot, 2002. "On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
  7. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1335-1357, July.
  8. Groezen, B.J.A.M. van & Leers, T. & Meijdam, A.C., 2000. "Family Size, Looming Demographic Changes and the Efficiency of Social Security Reform," Discussion Paper 2000-27, Tilburg University, Center for Economic Research.
  9. Peters, Wolfgang, 1995. "Public Pensions, Family Allowances and Endogenous Demographic Change," Journal of Population Economics, Springer, vol. 8(2), pages 161-83, May.
  10. Philippe Weil, 2008. "Overlapping Generations: the First Jubilee," Sciences Po publications info:hdl:2441/8712, Sciences Po.
  11. Volker Meier & Matthias Wrede, 2005. "Pension, Fertility, and Education," CESifo Working Paper Series 1521, CESifo Group Munich.
  12. Firouz Gahvari, 2009. "Pensions and fertility: in search of a link," International Tax and Public Finance, Springer, vol. 16(4), pages 418-442, August.
  13. Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May.
  14. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  15. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
  16. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  17. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  18. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599.
  19. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
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Citations

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Cited by:
  1. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2009. "Fertility, Human Capital Accumulation, and the Pension System," CESifo Working Paper Series 2736, CESifo Group Munich.
  2. Cipriani, Giam Pietro, 2013. "Population Ageing and PAYG Pensions in the OLG Model," IZA Discussion Papers 7144, Institute for the Study of Labor (IZA).
  3. C. Fan & Jie Zhang, 2013. "Differential fertility and intergenerational mobility under private versus public education," Journal of Population Economics, Springer, vol. 26(3), pages 907-941, July.
  4. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Dundee Discussion Papers in Economics 225, Economic Studies, University of Dundee.
  5. Szilvia Szegõ, 2011. "Pensions containing allowance paid by children – why and how?," Public Finance Quarterly, State Audit Office of Hungary, vol. 56(4), pages 429-445.

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