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Pension Systems and their Influence on Fertility and Growth

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Abstract

This paper studies the implications of different public pension systems on fertility and economic growth. Employing a three period overlapping generations endogenous growth model we compare the different impacts of pay-as-you-go-, fully funded- and informal pension systems. The novelty of our work lies in the formulation of altruism that is assumed to be one sided (descending) for economies represented by a public pension system and two sided (descending and ascending) for economies with informal pension systems. Through the incorporation of a mixed procreation motive we can study the case of fully crowded out intrafamilial transfers inside a public pension system model while still capturing fertility endogenously. We show that the introduction of public pension systems to a developing economy reduce fertility and stimulate economic growth. Through a comparison of the different public pension systems we highlight that a fully funded pension system results in higher economic growth compared to a pay-as-you-go one despite higher fertility because the growth enhancing effect of the higher capital stock is dominant. This suggests that observed fertility and growth differences between the US and Europe can partly be explained by the different types of pension systems.

Suggested Citation

  • Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers vie0704, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0704
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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