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Endogenous Fertility, Endogenous Growth and Public Pension System: Should We Switch from a Pay‐As‐You‐Go to a Fully Funded System?

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  • Yeopil Yoon
  • Gabriel Talmain

Abstract

In this paper we study the implications of state pension plan reform on fertility and on growth. We extend the Grossman and Yanagawa endogenous growth framework by incorporating altruism, making fertility endogenous. We investigate the effect on long‐run growth of a switch from a pay‐as‐you‐go (PAYG) pension system to a fully funded system. We show that a PAYG pension system is associated with a lower fertility rate than a fully funded system. This lower fertility in turn increases the rate of growth. Hence, switching from a PAYG system to a fully funded system may be harmful, especially for developing countries in which limited resources are heavily stressed by high fertility rates. In addition, we propose a hypothetical pension system, the saving subsidy programme (SSP), which would yield a higher growth rate than the PAYG system. The SSP consists of a minimum benefit level for each retired and of a subsidy to private savings.

Suggested Citation

  • Yeopil Yoon & Gabriel Talmain, 2001. "Endogenous Fertility, Endogenous Growth and Public Pension System: Should We Switch from a Pay‐As‐You‐Go to a Fully Funded System?," Manchester School, University of Manchester, vol. 69(5), pages 586-605, October.
    • Handle: RePEc:bla:manchs:v:69:y:2001:i:5:p:586-605
    DOI: 10.1111/1467-9957.00271
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    Cited by:

    1. 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.
    2. Ulrich van Suntum, "undated". "A way out of pay-as-you-go without a double burden," Working Papers 200105, Institute of Spatial and Housing Economics, Munster Universitary.
    3. Yasuoka, Masaya, 2018. "How Should A Government Finance for Pension Benefit?," MPRA Paper 87483, University Library of Munich, Germany.
    4. Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers vie0704, University of Vienna, Department of Economics.
    5. Oskari Juurikkala, 2007. "Pensions, Fertility And Families," Economic Affairs, Wiley Blackwell, vol. 27(4), pages 52-57, December.
    6. Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers 0704, University of Vienna, Department of Economics.
    7. Masaya Yasuoka, 2021. "How should a government finance pension benefits?," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 138-152, March.
    8. Koichi Miyazaki, 2013. "Pay-as-you-go social security and endogenous fertility in a neoclassical growth model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1233-1250, July.
    9. Zou, Tieding, 2016. "人口冲击、环境变动与家庭养老——基于多因素分解视角 [Effects of Population and Environment Changing on Family Pension——Based on the perspective of Its Factors]," MPRA Paper 79760, University Library of Munich, Germany, revised 16 Jan 2017.
    10. van Suntum, Ulrich, 2010. "A way out of pay-as-you-go without a double burden," CAWM Discussion Papers 27, University of Münster, Münster Center for Economic Policy (MEP).

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