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Longevity, fertility and PAYG pension systems sustainability

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  • Luciano Fanti
  • Luca Gori

Abstract

Recently Fanti and Gori (2008) showed - in the basic overlapping generations (OLG) model of neoclassical growth with exogenous fertility (Diamond, 1965) - that a positive relationship between longevity and pay-as-you-go (PAYG) pensions may exist independently of the size of the contribution rate burdening on the currently active generation (the young workers). We extend such a model to analyse how the balanced PAYG pension budget is affected by an increasing longevity in a fairly standard Diamond-style OLG model with endogenous fertility. It is shown that the positive relationship between longevity and pensions may be thought to be a robust feature of OLG economies. In particular, (1) the demand for children may either increase or decrease along with an increased longevity, though the latter is not very likely, and (2) the endogeneisation of fertility rates may strengthen or weaken the beneficial effects that the reduction in adult mortality plays on PAYG pensions, and this result depends exclusively on the size of the households' preference for raising children. Therefore, even in a context in which agents choose endogenously the number of children raised, there would be room for an increase, rather than the often threatened reduction, in future pensions by keeping unaltered the contribution rate to the PAYG scheme paid by current workers, and this holds especially in the case in which parents have a strong preference for having children.

Suggested Citation

  • Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  • Handle: RePEc:pie:dsedps:2009/77
    Note: ISSN 2039-1854
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    File URL: https://www.ec.unipi.it/documents/Ricerca/papers/2009-77.pdf
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    References listed on IDEAS

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    Cited by:

    1. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
    2. Luciano Fanti & Luca Gori, 2011. "On economic growth and minimum wages," Journal of Economics, Springer, vol. 103(1), pages 59-82, May.
    3. Luciano Fanti, 2015. "Growth, PAYG pension systems crisis and mandatory age of retirement," Economics Bulletin, AccessEcon, vol. 35(2), pages 1160-1167.
    4. Manuela Gussoni & Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    5. 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.
    6. Luciano Fanti, 2012. "PAYG pensions and fertility drop: some (pleasant) arithmetic," Discussion Papers 2012/146, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Du Cai Cai & Muysken Joan & Sleijpen Olaf, 2010. "Economy wide risk diversification in a three-pillar pension system," Research Memorandum 055, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Luciano Fanti, 2012. "Consequences of a boost of mandatory retirement age on long run income and PAYG pensions," Discussion Papers 2012/149, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Luciano Fanti & Luca Gori, 2012. "PAYG Pensions and Economic Cycles," Public Finance Review, , vol. 40(2), pages 240-269, March.
    10. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    11. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    Keywords

    Pensions; Fertility; OLG model;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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