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Pensions with Endogenous and Stochastic Fertility

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  • Cremer, Helmuth
  • Gahvari, Firouz
  • Pestieau, Pierre

Abstract

This paper studies the design of a pay-as-you-go social security system in a society where fertility is in part stochastic and in part determined through capital investment. If parents' investments in children are publicly observable, pension benefits must be linked positively to the the level of investment, and payroll taxes negatively to the number of children. The outcome is characterized by full insurance with all parents, regardless of their number of children, enjoying identical consumption levels. Without observability, benefits must increase, and payroll taxes decrease, with the number of children. The second-best level of investment in children, and the resulting average fertility rate, are less than their corresponding first-best levels.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 305.

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Date of creation: Sep 2004
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Publication status: Published in Journal of Public Economics, vol.�90, n°12, 2006, p.�2303-2321.
Handle: RePEc:ide:wpaper:2990

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  1. Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May.
  2. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, 2006. "Pensions with heterogenous individuals and endogenous fertility," CORE Discussion Papers 2006015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
  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. 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.
  6. 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.
  7. 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.
  8. G. ABIO & Géraldine MAHIEU & C. Patxot, 2002. "On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Robert Fenge & Volker Meier, 2005. "Pensions and fertility incentives," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 28-48, February.
  10. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
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