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Investment in children, social security, and intragenerational risk sharing

Author

Listed:
  • FAN Simon,

    (Lingnan University, Hong Kong)

  • PANG Yu,

    (Macau University of Science and Technology)

  • PESTIEAU Pierre,

    (Université de Liège, CORE, UCLouvain and Toulouse School of Economics)

Abstract

We analyze the role of pay-as-you-go social security in intragenerational risk sharing in an overlapping-generations model with individual heterogeneity. Parents invest in their children’s education in exchange for old-age support financed by a fraction of their children’s future earnings. Due to random factors such as luck in the job market, children may have different earning capacities even if they receive the same education. Without social security, a parent receives a transfert payment from her own child, so the received amount is uncertain as it depends on the child’s earnings. The social security scheme of pooling transfer contributions from all children and then returning them equally to each parent insures parents against the riks of educational investments. Our models shows that social security stimulates educational spending, increases labor earnings, and improves social welfare (as measured by ex ante individual utility). However, it worsens ex post intragenerational income equality (as measured by the Gini coefficient for lifetime income).

Suggested Citation

  • FAN Simon, & PANG Yu, & PESTIEAU Pierre,, 2019. "Investment in children, social security, and intragenerational risk sharing," LIDAM Discussion Papers CORE 2019004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2019004
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    Cited by:

    1. is not listed on IDEAS
    2. Zhiping Song & Peishan Tong, 2022. "The Impact of Social Security Expenditure on Human Common Development: Evidence from China’s Provincial Panel Data," Sustainability, MDPI, vol. 14(17), pages 1-12, September.
    3. Toshiki Tamai, 2023. "Social security, economic growth, and social welfare in an overlapping generation model with idiosyncratic TFP shock and heterogeneous workers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(3), pages 1829-1862, July.
    4. Herdis Herdiansyah & Randi Mamola & Ninin Ernawati, 2024. "Intragenerational Dynamics in the Indonesian Oil Palm Growth Zone: The Resolution between Circular Dimensions and Human Capital," Sustainability, MDPI, vol. 16(8), pages 1-19, April.

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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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