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Fertility, human capital accumulation, and the pension system

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  • CREMER, Helmuth

    (Toulouse School of Economics ( University or Toulouse and Institut Universitaire de France), F-3000 Toulouse, France)

  • GAHVARI, Firouz

    (University of Illinois at Urbana-Champaign, Department of Economics, IL, USA)

  • PESTIEAU, Pierre

    ()
    (CREPP, University of Liege, B-4000 Liège, Belgium; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve)

Abstract

This paper provides a unified treatment of externalities associated with fertility and human capital accumulation within pas-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

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010054.

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Date of creation: 01 Sep 2010
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Handle: RePEc:cor:louvco:2010054

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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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  1. 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.
  2. Peters, Wolfgang, 1995. "Public Pensions, Family Allowances and Endogenous Demographic Change," Journal of Population Economics, Springer, vol. 8(2), pages 161-83, May.
  3. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2008. "Pensions with heterogenous individuals and endogenous fertility," Journal of Population Economics, Springer, vol. 21(4), pages 961-981, October.
  4. 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.
  5. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
  6. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
  7. Helmut Cremer & Firouz Gahvari & Pierre Pestieau, 2006. "Pensions with endogenous and stochastic fertility," Working Papers 22594, Institut National de la Recherche Agronomique, France.
  8. 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.
  9. Meier, Volker & Wrede, Matthias, 2010. "Pensions, fertility, and education," Munich Reprints in Economics 19214, University of Munich, Department of Economics.
  10. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Tranfers to families with children as a principal-agent problem," CHILD Working Papers wp02_00, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  11. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599.
  12. Ab O, G. & Mahieu, G. & Patxot, C., 2004. "On the optimality of PAYG pension systems in an endogenous fertility setting," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(01), pages 35-62, March.
  13. 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.
  14. Philippe Weil, 2008. "Overlapping generations: the first jubilee," ULB Institutional Repository 2013/13430, ULB -- Universite Libre de Bruxelles.
  15. Firouz Gahvari, 2009. "Pensions and fertility: in search of a link," International Tax and Public Finance, Springer, vol. 16(4), pages 418-442, August.
  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. Fenge, Robert & Meier, Volker, 2005. "Pensions and Fertility Incentives," Munich Reprints in Economics 20343, University of Munich, Department of Economics.
  18. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  19. 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.
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Citations

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Cited by:
  1. 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.
  2. Michael Funke & Yu-Fu Chen, 2010. "Booms, recessions and financial turmoil: A fresh look at investment decisions under cyclical uncertainty," Quantitative Macroeconomics Working Papers 21007, Hamburg University, Department of Economics.
  3. 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.
  4. 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.
  5. Giam Cipriani, 2014. "Population aging and PAYG pensions in the OLG model," Journal of Population Economics, Springer, vol. 27(1), pages 251-256, January.

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