Fertility, Human Capital Accumulation, and the Pension System
42 Pages Posted: 6 Aug 2009
Date Written: July 1, 2009
Abstract
This paper provides a unified treatment of externalities associated with fertility and human capital accumulation as they relate to pension systems. It considers as overlapping generations model in which every generation consists of high earners and low earners with the proportion of types being determined endogenously. The number of children is deterministically chosen but the children’s future ability is in part stochastic, in part determined by the family background, and in part through education. In addition to the customary externality source associated with a change in average fertility rate, this setup highlights another externality source. This is due to the effect of a parent’s choice of number and educational attainment of his children on the proportion of high-ability individuals in the steady state. Our results include: (i) Investments in education of high- and low-ability parents must be subsidized, (ii) direct child subsidies to one or both parent types can be negative; i.e., they can be taxes, (iii) net subsidies to children (direct child subsidies plus education subsidies) to high-ability parents are always positive, and to low-ability parents can be positive or negative, (iv) either education subsidies or child subsidies, when used alone, can dominate the other instrument, (v) using child subsidy instruments alone entails a higher fertility rate and a lower ratio of high- to low-ability children, as compared to using education subsidies alone.
Keywords: pay-as-you-go social security, endogenous fertility, education, endogenous ratio of high to low ability types, three externality sources, education subsidies, child subsidies
JEL Classification: H55, J13
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Pensions and Fertility Incentives
By Robert Fenge and Volker Meier
-
On the Optimality of PAYG Pension Systems in an Endogenous Fertility Setting
By Gemma Abio, G. Mahieu, ...
-
Pensions with Endogenous and Stochastic Fertility
By Helmuth Cremer, Firouz Gahvari, ...
-
Are Family Allowances and Fertility-Related Pensions Siamese Twins?
By Robert Fenge and Volker Meier
-
Pensions with Heterogenous Individuals and Endogenous Fertility
By Helmuth Cremer, Firouz Gahvari, ...
-
Investing for the Old Age: Pensions, Children and Savings
By Vincenzo Galasso, Roberta Gatti, ...
-
Investing for the Old Age: Pensions, Children and Savings
By Vincenzo Galasso, Roberta Gatti, ...
-
Mixing Bismarck and Child Pension Systems: An Optimum Taxation Approach
By Robert Fenge and Jakob Von Weizsäcker