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Fertility, human capital accumulation, and the pension system

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

Abstract

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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Suggested Citation

  • CREMER, Helmuth & GAHVARI, Firouz & PESTIEAU, Pierre, 2011. "Fertility, human capital accumulation, and the pension system," CORE Discussion Papers RP 2366, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2366
    Note: In : Journal of Public Economics, 95(11-12), 1272-1279, 2011
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    File URL: http://dx.doi.org/10.1016/j.jpubeco.2010.09.014
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    References listed on IDEAS

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    Cited by:

    1. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2011. "Fertility, human capital accumulation, and the pension system," Journal of Public Economics, Elsevier, vol. 95(11), pages 1272-1279.
    2. Szilvia Szegõ, 2011. "Pensions containing allowance paid by children – why and how?," Public Finance Quarterly, State Audit Office of Hungary, vol. 56(4), pages 429-445.
    3. Cipriani, Giam Pietro, 2018. "Aging, Retirement, And Pay-As-You-Go Pensions," Macroeconomic Dynamics, Cambridge University Press, vol. 22(05), pages 1173-1183, July.
    4. repec:ags:pdcbeh:264613 is not listed on IDEAS
    5. C. Fan & Jie Zhang, 2013. "Differential fertility and intergenerational mobility under private versus public education," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 907-941, July.
    6. Hsiao-Lei Chu, 2015. "Private Tutoring, Wealth Constraint and Higher Education," Pacific Economic Review, Wiley Blackwell, vol. 20(4), pages 608-634, October.
    7. Giam Cipriani, 2014. "Population aging and PAYG pensions in the OLG model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(1), pages 251-256, January.
    8. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, July.
    9. Yasuoka, Masaya & Oguro, Kazumasa, 2015. "Public Education, Pension and Debt Policy," CIS Discussion paper series 649, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    10. repec:cje:issued:v:51:y:2018:i:1:p:186-215 is not listed on IDEAS
    11. Jinno, Masatoshi & Yasuoka, Masaya, 2016. "Are the social security benefits of pensions or child-care policies best financed by a consumption tax?," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 0(Issue 3).
    12. Gurgen Aslanyan, 2014. "The migration challenge for PAYG," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(4), pages 1023-1038, October.

    More about this item

    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

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