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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

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2366.

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Handle: RePEc:cor:louvrp:-2366

Note: In : Journal of Public Economics, 95(11-12), 1272-1279, 2011
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References

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  1. 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.
  2. Helmut Cremer & Firouz Gahvari & Pierre Pestieau, 2006. "Pensions with endogenous and stochastic fertility," Working Papers 22594, Institut National de la Recherche Agronomique, France.
  3. 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.
  4. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  5. G. Abío & Geraldine Mahieu & Cio Patxot, 2003. "On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting," CESifo Working Paper Series 1050, CESifo Group Munich.
  6. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, . "Fertility, human capital accumulation, and the pension system," CORE Discussion Papers RP -2366, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Transfers to Families with Children as a Principal-Agent Problem," CESifo Working Paper Series 351, CESifo Group Munich.
  8. Philippe Weil, 2008. "Overlapping Generations: the First Jubilee," Sciences Po publications info:hdl:2441/8712, Sciences Po.
  9. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  10. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Munich Reprints in Economics 938, University of Munich, Department of Economics.
  11. Meier, Volker & Wrede, Matthias, 2010. "Pensions, fertility, and education," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(01), pages 75-93, January.
  12. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599, April.
  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. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
  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. Robert Fenge & Volker Meier, 2003. "Pensions and Fertility Incentives," CESifo Working Paper Series 879, CESifo Group Munich.
  17. 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.
  18. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
  19. Peters, Wolfgang, 1995. "Public Pensions, Family Allowances and Endogenous Demographic Change," Journal of Population Economics, Springer, vol. 8(2), pages 161-83, May.
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Cited by:
  1. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, . "Fertility, human capital accumulation, and the pension system," CORE Discussion Papers RP -2366, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Giam Cipriani, 2014. "Population aging and PAYG pensions in the OLG model," Journal of Population Economics, Springer, vol. 27(1), pages 251-256, January.
  3. Michael Funke & Yu-Fu Chen, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Quantitative Macroeconomics Working Papers 20908, Hamburg University, Department of Economics.
  4. 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.
  5. 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.

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