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Social Security and Demographic Trends: Theory and Evidence from the International Experience

Author

Listed:
  • Isaac Ehrlich

    (SUNY Buffalo)

  • Jinyoung Kim

    (SUNY Buffalo)

Abstract

The worldwide problem with pay-as-you-go, defined-benefits social security systems isn't just financial. Through a dynamic, overlapping-generations model where forming a family and bearing and educating children are choice variables, we show that social security taxes and benefits generate incentives to reduce both family formation and fertility, and that these effects cannot be fully neutralized by counteracting inter-temporal or intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years. We find that PAYG tax measures account for a non-trivial part of the downward trends in family formation and fertility worldwide, especially in OECD countries. (Copyright: Elsevier)

Suggested Citation

  • Isaac Ehrlich & Jinyoung Kim, 2007. "Social Security and Demographic Trends: Theory and Evidence from the International Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 55-77, January.
  • Handle: RePEc:red:issued:05-22
    DOI: 10.1016/j.red.2006.09.002
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    References listed on IDEAS

    as
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    10. Isaac Ehrlich & Jinyoung Kim, 2005. "Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience," NBER Working Papers 11121, National Bureau of Economic Research, Inc.
    11. Michael Baker & Emily Hanna & Jasmin Kantarevic, 2004. "The Married Widow: Marriage Penalties Matter!," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 634-664, June.
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    1. Branislav Žúdel autorom Kriteka: Nerušme dôchodkovú reformu
      by Kriteko in Kritická ekonómia on 2010-12-20 14:14:14

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    Cited by:

    1. Filoso, Valerio & Papagni, Erasmo, 2015. "Fertility choice and financial development," European Journal of Political Economy, Elsevier, vol. 37(C), pages 160-177.
    2. Justina Fischer & Torberg Falch, 2008. "Does a generous welfare state crowd out student effort? Panel data evidence from international student tests," TWI Research Paper Series 25, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    3. Robert Fenge & Beatrice Scheubel, 2017. "Pensions and fertility: back to the roots," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 93-139, January.
    4. Gugushvili, Alexi, 2007. "Giving the ageing of the population how can countries afford pay-as-you-go social insurance pensions?," MPRA Paper 2869, University Library of Munich, Germany.
    5. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2012. "Demographic Change, Human Capital and Welfare," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 94-107, January.
    6. Isaac Ehrlich & Jinyoung Kim, 2007. "Has Social Security Influenced Family Formation and Fertility in OECD Countries? An Economic and Econometric Analysis," NBER Working Papers 12869, National Bureau of Economic Research, Inc.
    7. Jellal, Mohamed & Bouzahzah, Mohamed, 2012. "Social security family finance and demography," MPRA Paper 38804, University Library of Munich, Germany.
    8. Isaac Ehrlich & Jinyoung Kim, 2015. "Immigration, Human Capital Formation, and Endogenous Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 9(4), pages 518-563.
    9. repec:spr:jhappi:v:19:y:2018:i:1:d:10.1007_s10902-016-9799-9 is not listed on IDEAS
    10. Isaac Ehrlich & Dunli Li & Zhiqiang Liu, 2017. "The Role of Entrepreneurial Human Capital as a Driver of Endogenous Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 11(3), pages 310-351.
    11. Falch, Torberg & Fischer, Justina AV, 2011. "Welfare state generosity and student performance: Evidence from international student tests," MPRA Paper 35269, University Library of Munich, Germany.
    12. Torberg Falch & Justina AV Fischer, 2016. "Welfare state generosity and student performance: Evidence from international student tests 1980 ? 2003," Working Paper Series 17316, Department of Economics, Norwegian University of Science and Technology.
    13. Aoki, Takaaki, 2008. "On the Implications of Two-way Altruism in Human-Capital-Based OLG Model," MPRA Paper 12492, University Library of Munich, Germany.
    14. Torberg Falch & Justina AV Fischer, 2008. "Does a generous welfare state crowd out student achievement? Panel data evidence from international student tests," TWI Research Paper Series 31, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    15. Vincenzo Galasso & Roberta Gatti & Paola Profeta, 2009. "Investing for the old age: pensions, children and savings," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 538-559, August.
    16. Jäger, Philipp, 2017. "Bismarck in the bedroom? Pension reform and fertility: Evidence 1870-2010," Ruhr Economic Papers 677, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    17. Hans-Werner Sinn, 2013. "Das demographische Defizit – die Fakten, die Folgen, die Ursachen und die Politikimplikationen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 66(21), pages 03-23, November.
    18. Erasmo Papagni, 2008. "The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving, and Growth," Discussion Papers 11_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    19. Aoki Takaaki, 2011. "On the Implications of Two-Sided Altruism in Human Capital Based OLG Model," Asian Journal of Law and Economics, De Gruyter, vol. 2(2), pages 1-40, July.
    20. Jäger, Philipp, 2017. "Bismarck in the bedroom? Pension reform and fertility: Evidence 1870-2010," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168078, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Social security; Family; Human capital; Marriage; Divorce; Fertility; Saving; Growth; Public pension; Pay-as-you-go;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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