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Public pensions and growth

Author

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  • LAMBRECHT, Stéphane
  • MICHEL, Philippe
  • VIDAL, Jean-Pierre

Abstract

This paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient JEL Classification: H55, I20, D91
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Suggested Citation

  • LAMBRECHT, Stéphane & MICHEL, Philippe & VIDAL, Jean-Pierre, 2005. "Public pensions and growth," LIDAM Reprints CORE 1820, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:1820
    DOI: 10.1016/j.euroecorev.2003.09.009
    Note: In : European Economic Review, 49(5), 1261-1281, 2005
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I20 - Health, Education, and Welfare - - Education - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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