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Economic growth and stability with public PAYG pensions and private intra-family old-age insurance

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  • Fanti, Luciano
  • Gori, Luca

Abstract

This paper investigates the steady state and dynamical effects of two historical alternatives as a means of old-age insurance – i.e., voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions –, in a general equilibrium overlapping generations model with children as a desirable good. It is shown that the shift from a private system of old-age insurance to a public system of social security increases GDP per worker. Moreover, although in both cases the dynamics of capital, under myopic expectations, may be globally unstable depending on the size of the (private as well as public) inter-generational transfer, we show that such a shift significantly reduces, for plausible economies, the risk of cyclical instability which otherwise would be dramatically high, especially in countries with high degree of parsimony and low preference for children.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20727.

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Date of creation: 16 Feb 2010
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Handle: RePEc:pra:mprapa:20727

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Keywords: Endogenous fertility; Myopic foresight; OLG model; Private old-age support; Public PAYG pensions;

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References

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  1. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  2. Martin Feldstein, 2005. "Structural Reform of Social Security," NBER Working Papers 11098, National Bureau of Economic Research, Inc.
  3. Michel, Philippe & de la Croix, David, 1999. "Myopic and perfect foresight in the OLG model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
  5. Becker, Gary S & Barro, Robert J, 1988. "A Reformulation of the Economic Theory of Fertility," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 1-25, February.
  6. Galor, Oded & Weil, David N, 1996. "The Gender Gap, Fertility, and Growth," American Economic Review, American Economic Association, vol. 86(3), pages 374-87, June.
  7. 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.
  8. Rowena A. Pecchenino & Patricia S. Pollard, 2000. "Dependent children and aged parents: funding education and social security in an aging economy," Working Papers 1995-001, Federal Reserve Bank of St. Louis.
  9. Nishimura, K. & Zhang, J., 1990. "Pay-As-You-Go Public Pensions With Endogenous Fertility," Papers 202, Australian National University - Department of Economics.
  10. Bas Groezen & Lex Meijdam, 2008. "Growing old and staying young: population policy in an ageing closed economy," Journal of Population Economics, Springer, vol. 21(3), pages 573-588, July.
  11. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-59, October.
  12. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
  13. Morand, Olivier F, 1999. " Endogenous Fertility, Income Distribution, and Growth," Journal of Economic Growth, Springer, vol. 4(3), pages 331-49, September.
  14. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc.
  15. Feldstein, Martin, 2005. "Structural Reform of Social Security," Scholarly Articles 2794830, Harvard University Department of Economics.
  16. Berthold U. Wigger, 1999. "Pay-as-you-go financed public pensions in a model of endogenous growth and fertility," Journal of Population Economics, Springer, vol. 12(4), pages 625-640.
  17. Alessandro Cigno & Martin Werding, 2007. "Children and Pensions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033690, December.
  18. Cigno, Alessandro, 1995. "Public pensions with endogenous fertility: Comment on Nishimura and Zhang," Journal of Public Economics, Elsevier, vol. 57(1), pages 169-173, May.
  19. Nishimura, Kazuo & Zhang, Junsen, 1995. "Sustainable Plans of Social Security with Endogenous Fertility," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 182-94, January.
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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.

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