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Investing for the old age : pensions, children and savings

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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 and Labor Policy and Technical Notes 47101, The World Bank.
  • Handle: RePEc:wbk:hdnspu:47101
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    Cited by:

    1. Francesco C. Billari & Vincenzo Galasso, 2008. "What Explains Fertility? Evidence from Italian Pension Reforms," CSEF Working Papers 209, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Vincenzo Galasso & Paola Profeta, 2010. "When the State Mirrors the Family: The Design of Pension Systems," CESifo Working Paper Series 3191, CESifo Group Munich.
    3. Francesco C. Billari & Vincenzo Galasso, 2014. "Fertility decisions and pension reforms. Evidence from natural experiments in Italy," IdEP Economic Papers 1403, USI Università della Svizzera italiana.
    4. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    5. Barnett, Richard & Bhattacharya, Joydeep & Puhakka, Mikko, 2012. "Private Versus Public Old-Age Security," School of Economics Working Paper Series 2012-14, LeBow College of Business, Drexel University.
    6. Alessandro Cigno & Mizuki Komura & Annalisa Luporini, 2017. "Self-enforcing family rules, marriage and the (non)neutrality of public intervention," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(3), pages 805-834, July.
    7. Kuddo, Arvo, 2009. "Structural educational reform : evidence from a teacher's displacement program in Armenia," Social Protection and Labor Policy and Technical Notes 47164, The World Bank.
    8. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection and Labor Policy and Technical Notes 49174, The World Bank.
    9. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection and Labor Policy and Technical Notes 52186, The World Bank.
    10. Makhema, Mpho, 2009. "Social protection for refugees and asylum seekers in the Southern Africa Development Community (SADC)," Social Protection and Labor Policy and Technical Notes 49168, The World Bank.
    11. Avato, Johanna & Koettl, Johannes & Sabates-Wheeler, Rachel, 2009. "Definitions, good practices, and global estimates on the status of social protection for international migrants," Social Protection and Labor Policy and Technical Notes 49172, The World Bank.
    12. Cigno, A., 2016. "Conflict and Cooperation Within the Family, and Between the State and the Family, in the Provision of Old-Age Security," Handbook of the Economics of Population Aging, Elsevier.
    13. Holzmann, Robert, 2010. "Bringing financial literacy and education to low and middle income countries : the need to review, adjust, and extend current wisdom," Social Protection and Labor Policy and Technical Notes 56501, The World Bank.
    14. repec:spr:soinre:v:133:y:2017:i:2:d:10.1007_s11205-016-1382-6 is not listed on IDEAS
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    17. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection and Labor Policy and Technical Notes 49173, The World Bank.
    18. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection and Labor Policy and Technical Notes 52919, The World Bank.
    19. Leonardo Villar & David Forero & Carmen Elisa Flórez & Nadia Puerta & Erika Enríquez & Natalia Valencia-López & Juan Pablo Alzate, 2015. "Ahorro e inversión para la vejez," INFORMES DE INVESTIGACIÓN 013897, FEDESARROLLO.
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    21. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection and Labor Policy and Technical Notes 49802, The World Bank.
    22. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection and Labor Policy and Technical Notes 51251, The World Bank.
    23. Paola Profeta & Simona Scabrosetti, 2010. "The Political Economy of Taxation," Books, Edward Elgar Publishing, number 13258.
    24. Lord, Janet & Posarac, Aleksandra & Nicoli, Marco & Peffley, Karen & Mcclain-Nhlapo, Charlotte & Keogh, Mary, 2010. "Disability and international cooperation and development : a review of policies and practices," Social Protection and Labor Policy and Technical Notes 56092, The World Bank.
    25. Ra, Young-Sun & Shim, Kyung Woo, 2009. "The Korean case study : past experience and new trends in training policies," Social Protection and Labor Policy and Technical Notes 53696, The World Bank.

    More about this item

    Keywords

    ; Debt Markets; Population Policies; Emerging Markets; Pensions&Retirement Systems;

    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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