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Linking Educational Loan Subsidies to Pay-as-you-go Pension Reforms

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  • SUMIZAWA, Kazui

Abstract

This study examines public pension reform in a small open economy model where households fully finance education. Departing from previous studies that assume fully publicly funded education, we introduce loan interest subsidies on education in the presence of intergenerational transmission of human capital, which enables an earlier phase-out of pay as-you-go (PAYG) pensions in a Pareto-improving way. We extend the analysis to a closed economy where wages and interest rates are endogenously determined. By incorporating general equilibrium effects through factor prices, we show that loan interest subsidies make a Pareto-improving, gradual reduction of PAYG pensions feasible even in closed economies. This result highlights the efficiency gains from linking pension reform with educational loan support, in contrast to prior studies that overlook private education spending or factor price adjustments.

Suggested Citation

  • SUMIZAWA, Kazui, 2025. "Linking Educational Loan Subsidies to Pay-as-you-go Pension Reforms," MPRA Paper 124645, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124645
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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