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The Pay-As-You-Go Pension System as a Fertility Insurance and Enforcement Device

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Hans-Werner Sinn

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Abstract

It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for rotten kid' who are unwilling to pay their parents a pension. It is true that the system has amoral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale this effect will not strong enough to prevent a welfare improvement. If scale of the system is so large that parents bequeath some of their pensions to their children overdrawn and creates unnecessarily strong disincentives for human capital investment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6610.

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Date of creation: Jun 1998
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Handle: RePEc:nbr:nberwo:6610

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers

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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. Roger H. Gordon & Hal R. Varian, 1985. "Intergenerational Risk Sharing," NBER Working Papers 1730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Neher, Philip A, 1971. "Peasants, Procreation, and Pensions," American Economic Review, American Economic Association, vol. 61(3), pages 380-89, June.
  3. Gary S. Becker & Robert J. Barro, 1988. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
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  5. Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Working Paper Series 493, Research Institute of Industrial Economics. [Downloadable!]
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  6. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1165-82, December. [Downloadable!] (restricted)
  7. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Jensen, Eric R, 1990. "An Econometric Analysis of the Old-Age Security Motive for Childbearing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(4), pages 953-68, November. [Downloadable!] (restricted)
  9. Hans-Werner Sinn, 1997. "The Value of Children and Immigrants in a Pay-As-You-Go Pension System: A Proposal for a Partial Transition to a Funded System," NBER Working Papers 6229, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Feldstein, Martin, 1990. "Imperfect annuity markets, unintended bequests, and the optimal age structure of social security benefits," Journal of Public Economics, Elsevier, vol. 41(1), pages 31-43, February. [Downloadable!] (restricted)
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  11. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October. [Downloadable!] (restricted)
  12. Blackorby, Charles & Donaldson, David, 1984. "Social criteria for evaluating population change," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 13-33, November. [Downloadable!] (restricted)
  13. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
  14. Razin, Assaf & Ben-Zion, Uri, 1975. "An Intergenerational Model of Population Growth," American Economic Review, American Economic Association, vol. 65(5), pages 923-33, December. [Downloadable!] (restricted)
  15. Enders, Walter & Lapan, Harvey E, 1982. "Social Security Taxation and Intergenerational Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 647-58, October. [Downloadable!] (restricted)
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  16. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November. [Downloadable!] (restricted)
  17. Drazen, Allan, 1978. "Government Debt, Human Capital, and Bequests in a Life-Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 86(3), pages 505-16, June. [Downloadable!] (restricted)
  18. Townley, Peter G. C. & Boadway, Robin W., 1988. "Social security and the failure of annuity markets," Journal of Public Economics, Elsevier, vol. 35(1), pages 75-96, February. [Downloadable!] (restricted)
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  19. Cigno, Alessandro & Rosati, Furio C., 1996. "Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA," European Economic Review, Elsevier, vol. 40(8), pages 1561-1589, November. [Downloadable!] (restricted)
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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. Axel Börsch-Supan & Alexander Ludwig & Joachim Winter, 2002. "Sind die Probleme der Bevölkerungsalterung durch eine höhere Geburtenrate lösbar?," MEA discussion paper series 02025, Mannheim Research Institute for the Economics of Aging, University of Mannheim. [Downloadable!]
    Other versions:
  2. Jukka Lassila & Tarmo Valkonen, 2000. "Pension Prefunding, Ageing, and Demographic Uncertainty," Discussion Papers 741, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Gugushvili, Alexi, 2007. "Giving the ageing of the population how can countries afford pay-as-you-go social insurance pensions?," MPRA Paper 2869, University Library of Munich, Germany. [Downloadable!]
  4. Michael Voigtländer & Barbara Henman, 2003. "Eine konstitutionelle Reform der Altersvorsorge," Otto-Wolff-Institut Discussion Paper Series 02/2003, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland. [Downloadable!]
  5. Volker Meier & Matthias Wrede, 2005. "Pension, Fertility, and Education," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. Hans-Werner Sinn, 2000. "Why a Funded Pension System is Useful and Why It is Not Useful," NBER Working Papers 7592, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Alexander Kemnitz & Berthold U. Wigger, 2000. "Growth and Social Security: The Role of Human Capital," CSEF Working Papers 33, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
    Other versions:
  8. Lans Bovenberg, 2002. "Financing Retirement in the European Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  9. Hans-Werner Sinn, 1999. "The Crisis of Germany's Pension Insurance System and How It Can Be Resolved," NBER Working Papers 7304, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Robert Fenge & Volker Meier, 2003. "Pensions and Fertility Incentives," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
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