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Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience

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  • Isaac Ehrlich
  • Jinyoung Kim

Abstract

The worldwide problem with pay-as-you-go (PAYG) social security systems isn't just financial. This study indicates that these systems may have exerted adverse effects on key demographic factors, private savings, and long-term growth rates. Through a comprehensive endogenous-growth model where human capital is the engine of growth, family choices affect human capital formation, and family formation itself is a choice variable, we show that social security taxes and benefits can create adverse incentive effects on family formation and subsequent household choices, and that these effects cannot be fully neutralized by counteracting intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years (1960-92). We find that PAYG tax measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11121.

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Date of creation: Feb 2005
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Handle: RePEc:nbr:nberwo:11121

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Pethokoukis Podcast: Time for parents to get a tax cut? My chat with Robert Stein, architect of the conservative push for a pro-growth, pro-family tax agenda
    by James Pethokoukis in AEIdeas on 2013-11-01 15:50:46
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Isaac Ehrlich, 2009. "The Mystery of Human Capital as Engine of Growth, or Why the US Became the Economic Superpower in the 20th Century," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(56), pages 41-93, October -.
  2. Hans-Werner Sinn, 2003. "Das demographische Defizit - die Fakten, die Folgen, die Ursachen und ihre Politikimplikationen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 56(05), pages 20-36, 03.
  3. Bruce, Neil & Turnovsky, Stephen J., 2013. "Social security, growth, and welfare in overlapping generations economies with or without annuities," Journal of Public Economics, Elsevier, vol. 101(C), pages 12-24.
  4. Luisa Fuster & Ayşe İmrohoroğlu & Selahattin İmrohoroğlu, 2007. "Elimination of Social Security in a Dynastic Framework," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 113-145.
  5. David E. Bloom & David Canning & Günther Fink & Jocelyn E. Finlay, 2008. "Demographic Change, Institutional Settings, and Labor Supply," PGDA Working Papers 4208, Program on the Global Demography of Aging.
  6. Chien-Chiang Lee & Chun-Ping Chang, 2006. "Social security expenditure and GDP in OECD countries: A cointegrated panel analysis," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 303-320.
  7. Alfredo Pereira & Jorge Andraz, 2012. "Social security and economic performance in Portugal: after all that has been said and done how much has actually changed?," Portuguese Economic Journal, Springer, vol. 11(2), pages 83-100, August.
  8. David E. Bloom & David Canning & Gunther Fink & Jocelyn Finlay, 2009. "The Effect of Social Security Reform on Male Retirement in High and Middle Income Countries," PGDA Working Papers 4809, Program on the Global Demography of Aging.
  9. Michele Boldrin & Mariacristina De Nardi & Larry E. Jones, 2005. "Fertility and Social Security," Staff Report 359, Federal Reserve Bank of Minneapolis.
  10. 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, vol. 10(1), pages 55-77, January.
  11. Isaac Ehrlich & Jinyoung Kim, 2007. "Has Social Security Influenced Family Formation and Fertility in OECD Countries? An Economic and Econometric Analysis," NBER Working Papers 12869, National Bureau of Economic Research, Inc.
  12. Holzmann, Robert, 2005. "Demographic Alternatives for Aging Industrial Countries: Increased Total Fertility Rate, Labor Force Participation, or Immigration," IZA Discussion Papers 1885, Institute for the Study of Labor (IZA).
  13. Kai Zhao, 2009. "Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution," UWO Department of Economics Working Papers 20091, University of Western Ontario, Department of Economics.
  14. Sinn, Hans-Werner, 2005. "Europe's Demographic Deficit," Munich Reprints in Economics 934, University of Munich, Department of Economics.
  15. Barnett, Richard C. & Bhattacharya, Joydeep & Puhakka, Mikko, 2012. "Private versus public old-age security," Staff General Research Papers 35442, Iowa State University, Department of Economics.

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