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PAYG Pensions and Economic Cycles Exogenous versus Endogenous Fertility

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  • Luciano Fanti

    (University of Pisa, Pisa, Italy)

  • Luca Gori

    ()
    (University of Genoa, Genoa, Italy)

Abstract

In this article we compare the dynamics and long-run outcomes of an overlapping generations closed economy under exogenous and endogenous fertility. Individuals have myopic foresight, and pay-as-you-go (PAYG) public pensions exist. Although large PAYG transfers may cause endogenous fluctuations in both contexts, cyclical instability and deterministic chaos more likely occur when fertility is an economic decision variable. We find that the existence of endogenous fertility and PAYG pensions can explain the occurrence of demographic oscillations that mimic the baby boom and baby bust, in contrast with the unrealistic case of constant population, and also economic cycles. We also show that an increase in the social security contribution rate under endogenous fertility, often advocated as a remedy against the crisis of public pension budgets, may prolong both the phases and size of demographic (economic) cycles around a lower (higher) long-run level of population growth (income per worker) than under exogenous fertility.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 40 (2012)
Issue (Month): 2 (March)
Pages: 240-269

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Handle: RePEc:sae:pubfin:v:40:y:2012:i:2:p:240-269

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Keywords: demoeconomic fluctuations; myopic foresight; PAYG pensions; stability; OLG model;

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References

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Cited by:
  1. Manuela Gussoni - Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  2. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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