The Role of Social Security in Household Decisions: Var Estimates of Saving and Fertility Behaviour in Germany
Estimating saving and fertility simultaneously by the VAR method, we find that social security cover has a positive effect on household saving, and a negative effect on fertility. In Germany, as in other countries where the hypothesis was tested, social security is thus good for growth. A possible explanation for this unconventional finding is that compulsory saving in the form of pension contributions tends to displace intra-family transfers, rather than asset formation. However, the negative effect of social security on fertility tends to erode the systemâ€™s own contributory base, because it reduces the number of future contributors. That is one of the reasons why, in Germany as elsewhere, pay-as-you-go pension systems tend to be financially unstable. To some extent, this is counteracted by child-related benefits, which tend to encourage fertility, but the effect appears to be weak.
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