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The pay-as-you-go pension system as fertility insurance and an enforcement device

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  • Sinn, Hans-Werner

Abstract

A PAYGO system may serve as insurance against not having children and as an enforcement device for ungrateful children who are unwilling to pay their parents a pension. In fact, the latter was Bismarck’s historic motive for introducing this system. It is true that the PAYGO system reduces the investment in human capital, but if it is run on a sufficiently small scale, it may nevertheless bring about a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment.

Suggested Citation

  • 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.
    • Handle: RePEc:lmu:muenar:938
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    More about this item

    Keywords

    Fertility insurance; Human capital investment; Pension system;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J1 - Labor and Demographic Economics - - Demographic Economics

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