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PAYG pensions, tax-cum-subsidy and optimality

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  • Fanti, Luciano
  • Gori, Luca

Abstract

Using 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20219.

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Date of creation: 23 Jan 2010
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Handle: RePEc:pra:mprapa:20219

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Keywords: Overlapping generations; PAYG Pensions; Small open economy; Tax-cum-subsidy;

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References

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  1. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
  2. Robert Fenge & Volker Meier, 2003. "Pensions and Fertility Incentives," CESifo Working Paper Series 879, CESifo Group Munich.
  3. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
  4. Samuelson, Paul A, 1975. "The Optimum Growth Rate for Population," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 531-38, October.
  5. Deardorff, Alan V, 1976. "The Optimum Growth Rate for Population: Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 510-15, June.
  6. 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.
  7. Klaus Jaeger & Wolfgang Kuhle, 2009. "The optimum growth rate for population reconsidered," Journal of Population Economics, Springer, vol. 22(1), pages 23-41, January.
  8. Gahvari, Firouz, 1993. "Taxation and Government Expenditures in a Life-Cycle Growth Model," Public Finance = Finances publiques, , vol. 48(1), pages 33-56.
  9. Bas van Groezen & Lex Meijdam, 2004. "Growing Old and Staying Young: Population Policy in an Ageing Closed Economy," Working Papers 04-28, Utrecht School of Economics.
  10. Luca Gori & Luciano Fanti, 2007. "Welfare and Fertility in a Neoclassical Olg Growth Model: The Effects of Intra-Generational Tax Policies," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2007(93), pages 53-69.
  11. Edmund S. Phelps, 1968. "Population Increase," Canadian Journal of Economics, Canadian Economics Association, vol. 1(3), pages 497-518, August.
  12. 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.
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Cited by:
  1. Stauvermann, Peter J. & Ky, Sereyvath & Nam, Gi-Yu, 2013. "The Costs of Increasing the Fertility Rate in an Endogenous Growth Model," MPRA Paper 46381, University Library of Munich, Germany.
  2. Luciano Fanti & Luca Gori, 2014. "Endogenous fertility, endogenous lifetime and economic growth: the role of child policies," Journal of Population Economics, Springer, vol. 27(2), pages 529-564, April.

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