Fostering Within-Family Human-Capital Investment: An Intragenerational Insurance Perspective of Social Security
AbstractWe propose an extended pay-as-you-go social security system that conditions pension benefits on the aggregate wage sum and on the wage of one's children. The latter increases parents' incentives to provide their children with good within-family education. However, since wages depend stochastically on parents' unobservable investment in their children's human capital, some insurance against the productivity risk of one's children is provided, because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it with real-world systems, which typically do not condition benefits on the wages of one's children. Our approach suggests a novel role for a well-designed social security system: it can foster human-capital accumulation and act as an intragenerational insurance against productivity risk.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 62 (2006)
Issue (Month): 4 (December)
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Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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