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Optimal social security in a dynastic model with investment externalities and endogenous fertility

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  • Zhang, Jie
  • Zhang, Junsen

Abstract

This paper studies optimal pay-as-you-go social security with positive bequests and endogenous fertility. With an investment externality, a competitive solution without social security su?ers from under-investment in capital and over-reproduction of population. We show that social security can improve welfare by reducing fertility and increasing capital intensity. We also illustrate numerically that a small degree of this externality is enough to justify the observed high ratios of social security spending to GDP.
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  • Zhang, Jie & Zhang, Junsen, 2007. "Optimal social security in a dynastic model with investment externalities and endogenous fertility," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3545-3567, November.
    • Handle: RePEc:eee:dyncon:v:31:y:2007:i:11:p:3545-3567
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