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Pensions with Heterogenous Individuals and Endogenous Fertility

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  • Cremer, Helmuth
  • Gahvari, Firouz
  • Pestieau, Pierre

Abstract

This paper studies the design of pension schemes in a society where fertility is endogenous and parents differ in their ability to raise children. In a world with perfect information, a pay-as-you-go social security system is characterized by equal pensions for all but different contributions which may or may not increase with the number of children. Additionally, fertility must be subsidized at the margin to correct for the externality that accompanies fertility. In a world of asymmetric information, incentive-related distortions supplement the Pigouvian subsidy. These may either require an additional subsidy or an offsetting tax on fertility depending on whether the redistribution is towards people with more or less children. In the former case, pensions are decreasing in the number of children: in the latter case, they are increasing.

Suggested Citation

  • Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2006. "Pensions with Heterogenous Individuals and Endogenous Fertility," CEPR Discussion Papers 5553, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5553
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    1. 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.
    2. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2008. "Pensions with heterogenous individuals and endogenous fertility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(4), pages 961-981, October.
    3. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1335-1357, July.
    4. Alessandro Cigno, 2011. "The Economics of Marriage," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(s1), pages 28-41, May.
    5. 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 467-467.
    6. Robert Fenge & Volker Meier, 2005. "Pensions and fertility incentives," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(1), pages 28-48, February.
    7. Bental, Benjamin, 1989. "The Old Age Security Hypothesis and Optimal Population Growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 1(4), pages 285-301.
    8. Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May.
    9. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2011. "Stochastic Fertility, Moral Hazard, and the Design of Pay-As-You-Go Pension Plans," CESifo Economic Studies, CESifo, vol. 57(2), pages 332-348, June.
    10. Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2004. "Hidden information problems in the design of family allowances," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(4), pages 645-655, December.
    11. Abã O, G. & Mahieu, G. & Patxot, C., 2004. "On the optimality of PAYG pension systems in an endogenous fertility setting," Journal of Pension Economics and Finance, Cambridge University Press, vol. 3(1), pages 35-62, March.
    12. 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.
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    Citations

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    Cited by:

    1. Pierre Pestieau & Gregory Ponthiere & Motohiro Sato, 2008. "Longevity, Health Spending, and Pay-as-you-Go Pensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
    2. Meier, Volker & Wrede, Matthias, 2010. "Pensions, fertility, and education," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(1), pages 75-93, January.
    3. Robert Fenge & Beatrice Scheubel, 2017. "Pensions and fertility: back to the roots," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(1), pages 93-139, January.
    4. Pierre Pestieau & Gregory Ponthiere, 2013. "Childbearing Age, Family Allowances, and Social Security," Southern Economic Journal, John Wiley & Sons, vol. 80(2), pages 385-413, October.
    5. PESTIEAU, Pierre & PONTHIÈRE, Grégory & SATO, Motohiro, 2006. "Longevity and Pay-as-you-Go pensions," LIDAM Discussion Papers CORE 2006054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Robert Fenge & Beatrice Scheubel, 2013. "Pensions and Fertility: Back to the Roots - The Introduction of Bismarck's Pension Scheme and the European Fertility Decline," CESifo Working Paper Series 4383, CESifo.
    7. Andras Simonovits, 2015. "Optimal Child-Related Transfers with Endogenous Fertility," CERS-IE WORKING PAPERS 1514, Institute of Economics, Centre for Economic and Regional Studies.
    8. Andras Simonovits, 2015. "Optimal Child-Related Transfers and Personal Income Tax with Endogenous Fertility," CERS-IE WORKING PAPERS 1524, Institute of Economics, Centre for Economic and Regional Studies.
    9. 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.
    10. Keisuke Kondo, 2019. "Does agglomeration discourage fertility? Evidence from the Japanese General Social Survey 2000–2010," Journal of Economic Geography, Oxford University Press, vol. 19(3), pages 677-704.
    11. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2019. "Childlessness, Childfreeness and Compensation," PSE Working Papers halshs-02400049, HAL.
    12. Vincenzo Galasso & Roberta Gatti & Paola Profeta, 2009. "Investing for the old age: pensions, children and savings," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 538-559, August.
    13. 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.
    14. Firouz Gahvari, 2009. "Pensions and fertility: in search of a link," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 418-442, August.
    15. Helmuth Cremer & Firouz Gahvari & Pierre Pestieau, 2008. "Pensions with heterogenous individuals and endogenous fertility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(4), pages 961-981, October.
    16. Simonovits, András, 2014. "Gyermektámogatás, nyugdíj és endogén/heterogén termékenység - egy modell [Child support, pensions and endogenous (and heterogeneous) fertility. A model]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 672-692.
    17. Andras Simonovits, 2014. "Optimal Child Allowances with Heterogeneous Fertilities," CERS-IE WORKING PAPERS 1401, Institute of Economics, Centre for Economic and Regional Studies.
    18. Tatsuya Omori, 2009. "Effects of public education and social security on fertility," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(3), pages 585-601, July.
    19. Andras Simonovits, 2013. "Savings, Child Support, Pensions and Endogenous (and Heterogeneous) Fertility," CERS-IE WORKING PAPERS 1335, Institute of Economics, Centre for Economic and Regional Studies.
    20. Makoto Hirazawa & Koji Kitaura & Akira Yakita, 2014. "Fertility, Intra‐Generational Redistribution, and Social Security Sustainability," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(1), pages 98-114, February.
    21. Bas Groezen & Lex Meijdam, 2008. "Growing old and staying young: population policy in an ageing closed economy," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 573-588, July.
    22. Andras Simonovits, 2015. "Socially Optimal Child-Related Transfers and Personal Income Tax with Endogenous Fertility," CERS-IE WORKING PAPERS 1537, Institute of Economics, Centre for Economic and Regional Studies.
    23. Yew, Siew Ling & Zhang, Jie, 2013. "Socially optimal social security and education subsidization in a dynastic model with human capital externalities, fertility and endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 154-175.
    24. Gaggermeier, Christian, 2006. "Pension and children : Pareto improvement with heterogeneous preferences," IAB Discussion Paper 200603, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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    More about this item

    Keywords

    adverse selection; fertility; pensions;
    All these keywords.

    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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