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The Intergenerational State Education and Pensions

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  • Michele Boldrin
  • Ana Montes

Abstract

When credit markets to finance investment in human capital are missing, the competitive equilibrium allocation is inefficient. When generations overlap, this failure can be mitigated by properly designed social arrangements. We show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation. Neither the public financing of education nor the pension scheme we consider resemble standard ones. In our mechanism, via the public education system, the young borrow from the middle aged to invest in human capital. They pay back the debt via a social security tax, the proceedings of which finance pension payments. When the complete market allocation is achieved, the rate of return implicit in this borrowing-lending scheme should equal the market rate of return. Copyright 2005, Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 3 ()
Pages: 651-664

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Handle: RePEc:oup:restud:v:72:y:2005:i:3:p:651-664

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  1. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  2. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
  3. Gary S. Becker & Kevin M. Murphy, . "The Family and the State," University of Chicago - Population Research Center, Chicago - Population Research Center 87-15, Chicago - Population Research Center.
  4. Barro, R.J. & Becker, G.S., 1988. "Fertility Choice In A Model Of Economic Growth," University of Chicago - Economics Research Center, Chicago - Economics Research Center 88-8, Chicago - Economics Research Center.
  5. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, Econometric Society, vol. 69(3), pages 575-98, May.
  6. Antonio Rangel, 2000. "Forward and Backward Intergenerational Goods: A Theory of Intergenerational Exchange," NBER Working Papers 7518, National Bureau of Economic Research, Inc.
  7. Giorgio Bellettini & Carlotta Berti Ceroni, 1999. "Is Social Security Really Bad for Growth?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 796-819, October.
  8. Neher, Philip A, 1971. "Peasants, Procreation, and Pensions," American Economic Review, American Economic Association, American Economic Association, vol. 61(3), pages 380-89, June.
  9. Alan J. Auerbach & Laurence J. Kotlikoff & Willi Leibfritz, 1999. "Generational Accounting around the World," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number auer99-1.
  10. Cremer, Helmuth & Kessler, Denis & Pestieau, Pierre, 1992. "Intergenerational transfers within the family," European Economic Review, Elsevier, Elsevier, vol. 36(1), pages 1-16, January.
  11. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," NBER Working Papers 0362, National Bureau of Economic Research, Inc.
  12. Cass, David, 1972. "Distinguishing inefficient competitive growth paths: A note on capital overaccumulation and rapidly diminishing future value of consumption in a fairly general model of capitalistic production," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 224-240, April.
  13. Robert C. Merton, 1981. "On the Role of Social Security as a Means for Efficient Risk-Bearing in an Economy Where Human Capital Is Not Tradeable," NBER Working Papers 0743, National Bureau of Economic Research, Inc.
  14. Michele Boldrin, 1992. "Public Education and Capital Accumulation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1017, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Ana Montes, 2002. "Educación para los jóvenes y pensiones para los mayores: ¿Existe alguna relación? Evidencia para España," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 26(1), pages 145-185, January.
  16. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 662-77, September.
  17. Laurence J. Kotlikoff & Torsten Persson & Lars E.O. Svensson, 1986. "Laws as Assets: A Possible Solution to the Time Consistency Problem," NBER Working Papers 2068, National Bureau of Economic Research, Inc.
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