PAYG pensions, tax-cum-subsidy and optimality
AbstractUsing a simple OLG small open economy with endogenous fertility we show that the command optimum can be decentralised in a market setting using both a PAYG transfer from the young (old) to the old (young) and a tax-cum-subsidy (subsidy-cum-tax) policy, to redistribute within the working age generation. The latter instrument, in fact, reduces (increases) the opportunity cost of bearing children and, hence, stimulates (depresses) fertility. The policy implications are straightforward: when PAYG transfers exist and child rearing is time consuming, a tax-cum-subsidy (subsidy-cum-tax) policy can be used to internalise the externality of children, while also representing a Pareto improvement.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20219.
Date of creation: 23 Jan 2010
Date of revision:
Overlapping generations; PAYG Pensions; Small open economy; Tax-cum-subsidy;
Find related papers by JEL classification:
- J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-05 (All new papers)
- NEP-DGE-2010-02-05 (Dynamic General Equilibrium)
- NEP-PUB-2010-02-05 (Public Finance)
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