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The Pay-As-You-Go Pension System as a Fertility Insurance and Enforcement Device

  • Hans-Werner Sinn

It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for rotten kid' who are unwilling to pay their parents a pension. It is true that the system has amoral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale this effect will not strong enough to prevent a welfare improvement. If scale of the system is so large that parents bequeath some of their pensions to their children overdrawn and creates unnecessarily strong disincentives for human capital investment.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6610.

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Date of creation: Jun 1998
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Publication status: published as Sinn, Hans-Werner. "The Pay-as-You-Go Pension System As Fertility Insurance And An Enforcement Device," Journal of Public Economics, 2004, v88(7-8,Jul), 1335-1357.
Handle: RePEc:nbr:nberwo:6610
Note: PE
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