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On the Role of Pension Systems in Economic Development and Demographic Transition

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Abstract

In this paper we examine whether di¤erent pension systems a¤ect the set of initial human capital conditions capturing an economy in a low steady state equilibrium income. To analyze this problem, we employ a three period over- lapping generations model where fertility and investments into the children?s education are chosen endogenously. We show that education investments are higher and start at lower income levels for a pay-as-you-go pension system econ- omy compared to an informal, fertility related one. The income threshold needed to escape the ?poverty trap? is therefore lower if a pay-as-you-go pension sys- tem is employed. Moreover, unless the economy is caught in the low income steady state, a pay-as-you-go pension system supports higher equilibrium in- come. We further highlight that pension systems in?uence the timing of de- mographic transition through their di¤erent valuation of fertility, contributing to the explanation for observed di¤erences between developed and developing countries.

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  • Johannes Holler, 2008. "On the Role of Pension Systems in Economic Development and Demographic Transition," Vienna Economics Papers 0812, University of Vienna, Department of Economics.
  • Handle: RePEc:vie:viennp:0812
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    1. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1335-1357, July.
    2. Michele BOLDRIN & Mariacristina DE NARDI & Larry E. JONES, 2015. "Fertility and Social Security," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 261-299, September.
    3. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
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    7. Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers 0704, University of Vienna, Department of Economics.
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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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