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Fertility, human capital accumulation, and the pension system

  • CREMER, Helmuth
  • GAHVARI, Firouz
  • PESTIEAU, Pierre

This paper provides a unified treatment of externalities associated with fertility and human capital accumulation as they relate to pension systems. It considers as overlapping generations model in which every generation consists of high earners and low earners with the proportion of types being determined endogenously. The number of children is deterministically chosen but the children’s future ability is in part stochastic, in part determined by the family background, and in part through education. In addition to the customary externality source associated with a change in average fertility rate, this setup highlights another externality source. This is due to the effect of a parent’s choice of number and educational attainment of his children on the proportion of high-ability individuals in the steady state. Our results include: (i) Investments in education of high- and low-ability parents must be subsidized, (ii) direct child subsidies to one or both parent types can be negative; i.e., they can be taxes, (iii) net subsidies to children (direct child subsidies plus education subsidies) to high-ability parents are always positive, and to low-ability parents can be positive or negative, (iv) either education subsidies or child subsidies, when used alone, can dominate the other instrument, (v) using child subsidy instruments alone entails a higher fertility rate and a lower ratio of high- to low-ability children, as compared to using education subsidies alone.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2366.

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Handle: RePEc:cor:louvrp:-2366
Note: In : Journal of Public Economics, 95(11-12), 1272-1279, 2011
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  1. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Tranfers to families with children as a principal-agent problem," CHILD Working Papers wp02_00, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
  2. G. Abío & Geraldine Mahieu & Cio Patxot, 2003. "On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting," CESifo Working Paper Series 1050, CESifo Group Munich.
  3. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Munich Reprints in Economics 938, University of Munich, Department of Economics.
  4. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2006. "Pensions with endogenous and stochastic fertility," Journal of Public Economics, Elsevier, vol. 90(12), pages 2303-2321, December.
  5. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer, vol. 1(4), pages 285-301.
  6. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, vol. 87(2), pages 233-251, February.
  7. Meier, Volker & Wrede, Matthias, 2010. "Pensions, fertility, and education," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(01), pages 75-93, January.
  8. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, 2006. "Pensions with heterogenous individuals and endogenous fertility," CORE Discussion Papers 2006015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, . "Fertility, human capital accumulation, and the pension system," CORE Discussion Papers RP -2366, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Groezen, B.J.A.M. van & Leers, T. & Meijdam, A.C., 2000. "Family Size, Looming Demographic Changes and the Efficiency of Social Security Reform," Discussion Paper 2000-27, .
  11. Philippe Weil, 2008. "Overlapping Generations: the First Jubilee," Sciences Po publications info:hdl:2441/8712, Sciences Po.
  12. repec:cup:cbooks:9780521681599 is not listed on IDEAS
  13. Robert Fenge & Volker Meier, 2005. "Pensions and fertility incentives," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 28-48, February.
  14. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
  15. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
  16. van Groezen, B.J.A.M. & Leers, T. & Meijdam, A.C., 2000. "Family Size, Looming Demographic Changes and the Efficiency of Social Security Reform," Discussion Paper 2000-27, Tilburg University, Center for Economic Research.
  17. Firouz Gahvari, 2009. "Pensions and fertility: in search of a link," International Tax and Public Finance, Springer, vol. 16(4), pages 418-442, August.
  18. Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
  19. Peters, Wolfgang, 1995. "Public Pensions, Family Allowances and Endogenous Demographic Change," Journal of Population Economics, Springer, vol. 8(2), pages 161-83, May.
  20. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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