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Investing for the old age : pensions, children and savings

Author

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  • Galasso, Vincenzo
  • Gatti, Roberta
  • Profeta, Paola

Abstract

In the last century most countries have experienced both an increase in pension spending and a decline in fertility. The authors argue that the interplay of pension generosity and development of capital markets is crucial to understand fertility decisions. Since children have traditionally represented for parents a form of retirement saving, particularly in economies with limited or non-existent capital markets, an exogenous increase of pension spending provides a saving technology alternative to children, thus relaxing financial (saving) constraints and reducing fertility. The authors build a simple two-period overlapping generations (OLG) model to show that an increase in pensions is associated with a larger decrease in fertility in countries in which individuals have less access to financial markets. Cross-country regression analysis supports result: an interaction between various measures of pension generosity and a proxy for the development of financial markets consistently enters the regressions positively and significantly, suggesting that in economies with limited financial markets, children represent a way for parents to save for old age, and that increases in pensions amount effectively to relaxing these constraints.

Suggested Citation

  • Galasso, Vincenzo & Gatti, Roberta & Profeta, Paola, 2008. "Investing for the old age : pensions, children and savings," Social Protection Discussion Papers and Notes 47101, The World Bank.
  • Handle: RePEc:wbk:hdnspu:47101
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    More about this item

    Keywords

    ; Debt Markets; Population Policies; Emerging Markets; Pensions&Retirement Systems;
    All these keywords.

    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

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