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On The Interaction Between Education And Social Security

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  • Juan A. Rojas

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Abstract

This paper uses an overlapping generations model with endogenous fertility choices to analyze the quantitative costs and benefits of subsidizing higher education, paying particular attention to the interaction between such policy and the sustainability of the social security system. The paper focuses on the demographic change as the mechanism that link both policies. It is found that an increase in education subsidies changes the educational composition of the population and lowers average fertility. Lower average fertility and higher life expectancy of educated individuals translates into changes in the age structure of the population that requires an increase in the social security tax rate in order to balance the pension budget. Such process reduces the welfare benefits of this educational policy since the rise in social security taxes lowers the after-tax lifetime earnings of almost all individuals born in the period of the policy reform and over.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we033511.

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Date of creation: Jul 2003
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Handle: RePEc:cte:werepe:we033511

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Cited by:
  1. Isaac Ehrlich & Jinyoung Kim, 2005. "Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience," NBER Working Papers 11121, National Bureau of Economic Research, Inc.
  2. José Victor Rios-Rull, 2002. "Desigualdad, ¿qué sabemos?," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 26(2), pages 221-254, May.
  3. Christophe Hachon, 2010. "Éducation et progressivité des systèmes de retraite. Quand les inégalités face à la mort comptent," Revue économique, Presses de Sciences-Po, Presses de Sciences-Po, vol. 0(4), pages 751-769.
  4. Isaac Ehrlich & Jinyoung Kim, 2007. "Social Security and Demographic Trends: Theory and Evidence from the International Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 55-77, January.
  5. Yew, Siew Ling & Zhang, Jie, 2013. "Socially optimal social security and education subsidization in a dynastic model with human capital externalities, fertility and endogenous growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(1), pages 154-175.

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