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The pay-as-you-go pension system as fertility insurance and an enforcement device

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  • Sinn, Hans-Werner

Abstract

A PAYGO system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension. In fact, the latter was Bismarck’s historic motive for introducing this system. It is true that the PAYGO system reduces the investment in human capital, but if it is run on a sufficiently small scale, it may nevertheless bring about 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 University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19606.

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Date of creation: 2004
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Publication status: Published in Journal of Public Economics 7-8 88(2004): pp. 1335-1357
Handle: RePEc:lmu:muenar:19606

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  8. repec:fth:iniesr:493 is not listed on IDEAS
  9. Hans-Werner Sinn, 1999. "Pension Reform and Demographic Crisis: Why a Funded System is Needed and why it is not Needed," CESifo Working Paper Series 195, CESifo Group Munich.
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