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Fertility and pension systems

  • Rizzo, Giuseppe

In the last century, state pension systems have been introduced in most countries, and since then their size has been significantly increasing. A broad literature has studied this phenomenon, developing models that explain why pension systems exist and have been continuously expanding. At the same time, many authors have suggested that pension systems may substitute children as old-age economic security, discouraging fertility. In particular, this fact may explain the contemporaneity of the expansion of pension systems with the urbanization and industrialization processes. These two processes, in fact, have contributed to the weakening of family ties, which in turn results in the need for additional old-age economic security. In the political economy research these effects have been ignored, as the fertility choice is usually considered exogenous. This paper suggests a model that takes into account this endogenous effect and tries to analyze the net effect of the breakdown of family ties on the dimension of pension systems. The last section presents some empirical results supporting the theoretical model. The main result is that the transition toward the weak family does not necessarily imply an increase in the size of pension systems, because as the family structure becomes weaker the fertility decreases, thus reducing the profitability of the scheme: as the weak families start to increase, there could be an increase in the size of the pension system, but as they become the majority, the fertility rate may become too low, and the political support for the pension system may decrease.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12998.

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Date of creation: 20 Jan 2009
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Handle: RePEc:pra:mprapa:12998
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  1. Thomas F. Cooley & Elizabeth M. Caucutt & Nezih Guner, 2006. "The Farm, the City, and the Emergence of Social Security," Working Papers 06-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Becker, Gary S & Lewis, H Gregg, 1973. "On the Interaction between the Quantity and Quality of Children," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S279-88, Part II, .
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  9. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
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  12. Guido Tabellini, 1989. "The Politics of Intergenerational Redistribution," NBER Working Papers 3058, National Bureau of Economic Research, Inc.
  13. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  14. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
  15. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
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  18. 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.
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