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The Pay-As You-Go Pension System as a Fertility Insurance and Enforcement Device

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  • Sinn, Hans-Werner

Abstract

It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for 'rotten kids' who are unwilling to pay their parents a pension. It is true that the system has a moral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale, this effect will not be strong enough to prevent a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2023.

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Date of creation: Nov 1998
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Handle: RePEc:cpr:ceprdp:2023

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Keywords: Fertility; Migration; Public Pensions; Social Security;

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References

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  1. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
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  16. repec:fth:iniesr:493 is not listed on IDEAS
  17. Sinn, Hans-Werner, 1997. "The Value of Children and Immigrants in a Pay-As-You-Go Pension System: A Proposal For a Partial Transition to a Funded System," CEPR Discussion Papers 1734, C.E.P.R. Discussion Papers.
  18. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November.
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