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Optimal social security in a dynastic model with investment externalities and endogenous fertility

  • Zhang, Jie
  • Zhang, Junsen

This paper studies optimal pay-as-you-go social security with positive bequests and endogenous fertility. With an investment externality, a competitive solution without social security su?ers from under-investment in capital and over-reproduction of population. We show that social security can improve welfare by reducing fertility and increasing capital intensity. We also illustrate numerically that a small degree of this externality is enough to justify the observed high ratios of social security spending to GDP.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 11 (November)
Pages: 3545-3567

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:11:p:3545-3567
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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