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Family size, looming demographic changes and the efficiency of social security reform

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Author Info
Groezen, B. van
Leers, T.
Meijdam, L. (Tilburg University, Center for Economic Research)

Additional information is available for the following registered author(s):

Abstract

This paper analyses the e$ects of ageing and child support in a model with endogenous fertility and Pay-As-You-Go (PAYG) pensions. First, we show that the endogeneity of fertility makes society vulnerable to both pessimistic beliefs and changes in life expectancy. In particular, we show that the private fertility choice may not coincide with the social optimum, due to the existence of two external effects of a child on society as a whole. The market outcome without government intervention is efficient, however, as both externalities exactly cancel out in that case. If the government wants to redistribute towards the old, it cannot replicate the command optimum by merely applying lumpsum transfers, but rather needs a child allowance scheme to effectively alter the number of offspring chosen by households. Finally, we analyse whether a Paretoimproving social security reform is possible. It is shown that a mere reduction of the PAYG-scheme cannot be Pareto-improving, but a combined policy of decreasing the PAYG-tax and introducing child allowances can be.

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Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 27.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200027

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Related research
Keywords: overlapping generations;

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D10 - Microeconomics - - Household Behavior - - - General
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped
J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bourguignon, F., 1999. "The Cost of Children: May the Collective Approach to Household Behavior Help?," DELTA Working Papers 1999-01, DELTA (Ecole normale supérieure).
    Other versions:
  2. Folbre, Nancy, 1994. "Children as Public Goods," American Economic Review, American Economic Association, vol. 84(2), pages 86-90, May. [Downloadable!] (restricted)
  3. Becker, Gary S & Lewis, H Gregg, 1973. "On the Interaction between the Quantity and Quality of Children," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S279-88, Part II, . [Downloadable!] (restricted)
  4. Galor, Oded & Stark, Oded, 1990. "Migrants' Savings, the Probability of Return Migration and Migrants' Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May. [Downloadable!] (restricted)
  5. Pascal Belan & Philippe Michel & Pierre Pestieau, 1998. "Pareto-Improving Social Security Reform," The Geneva Risk and Insurance Review, Palgrave Macmillan Journals, vol. 23(2), pages 119-125, December. [Downloadable!] (restricted)
  6. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
  7. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  8. Cigno, Alessandro, 1992. "Children and Pensions," Journal of Population Economics, Springer, vol. 5(3), pages 175-83, August.
    Other versions:
  9. Corneo, Giacomo & Marquardt, Marko, 2000. "Public pensions, unemployment insurance, and growth," Journal of Public Economics, Elsevier, vol. 75(2), pages 293-311, February. [Downloadable!] (restricted)
  10. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, vol. 78(4), pages 662-77, September. [Downloadable!] (restricted)
  11. Harford, Jon D, 1998. "The Ultimate Externality," American Economic Review, American Economic Association, vol. 88(1), pages 260-65, March. [Downloadable!] (restricted)
  12. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Oxford University Press, vol. 13(3), pages 373-88, September.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2004. "Pensions with Endogenous and Stochastic Fertility," IDEI Working Papers 305, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  2. Theo Leers & Lex Meijdam & Harrie A. A Verbon, 2001. "The Politics of Pension Reform under Ageing," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2003. "Stochastic fertility, moral hazard, and the design of pay-as-you-go pension plans," DELTA Working Papers 2003-21, DELTA (Ecole normale supérieure). [Downloadable!]
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