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The intergenerational state: education and pensions

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  • Michele Boldrin
  • Ana Montes

Abstract

When credit markets to finance investment in human capital are missing, the competitive equilibrium allocation is inefficient. When generations overlap, this failure can be mitigated by properly designed social arrangements. We show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation. Neither the public financing of education nor the pension scheme we consider resemble standard ones. In our mechanism, via the public education system, the young borrow from the middle aged to invest in human capital. They pay back the debt via a social security tax, the proceedings of which finance pension payments. When the complete market allocation is achieved, the rate of return implicit in this borrowing-lending scheme should equal the market rate of return.

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  • Michele Boldrin & Ana Montes, . "The intergenerational state: education and pensions," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:336
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    References listed on IDEAS

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    Cited by:

    1. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
    2. Peter J. Stauvermann & Ronald R. Kumar, 2017. "Enhancing growth and welfare through debt-financed education," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 30(1), pages 207-222, January.
    3. Juan Carlos Conesa & Carlos Garriga, 2004. "Optimal Response to a Demographic Shock," Working Papers 157, Barcelona School of Economics.
    4. Tertilt, Michèle & Schoonbroodt, Alice, 2010. "Who Owns Children and Does it Matter?," CEPR Discussion Papers 7653, C.E.P.R. Discussion Papers.
    5. Gerhard Glomm & Juergen Jung, 2013. "The Timing of Redistribution," Southern Economic Journal, Southern Economic Association, vol. 80(1), pages 50-80, July.
    6. Soares, Jorge, 2015. "Borrowing constraints, parental altruism and welfare," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 1-20.

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