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Endogenous Fertility and Retirement Age

Author

Listed:
  • W. Addessi

  • D. Angelini
  • M. Delogu

Abstract

In a pay-as-you-go (PAYG) pension system, the fiscal effects of fertility depend on the instrument through which the pension balance is restored. When the pension budget is balanced by adjusting contribution rates or pension benefits, fertility generates a positive fiscal externality because additional children expand the future contributor base, implying that decentralized fertility is inefficiently low. However, pension systems are often adjusted through the retirement age. We show that, when retirement age is the equilibrating margin, higher fertility not only improves pension financing but also reduces retirement age, creating an additional retirement-leisure channel. In a simple overlapping-generation model with PAYG pension system, decentralized fertility can therefore be either too high or too low relative to the PAYG-constrained social planner allocation. The sign of the distortion depends on whether the retirement age required for PAYG balance is above or below the retirement age households would prefer, given the contribution rate and pension benefit.

Suggested Citation

  • W. Addessi & D. Angelini & M. Delogu, 2026. "Endogenous Fertility and Retirement Age," Working Paper CRENoS 202607, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    • Handle: RePEc:cns:cnscwp:202607
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    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
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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