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Why Child Allowances Fail to Solve the Pension Problem of Aging Societies

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  • Peter J. Stauvermann

    (School of Global Business & Economics, Changwon National University, Changwon 641-773, Korea)

  • Frank Wernitz

    (Department of Business, IUBH University of Applied Sciences, Rheinlanddamm 201, 44139 Dortmund, Germany)

Abstract

The aim of the paper is to investigate how child allowances affect population growth and pension benefits of pay-as-you-go (PAYG) pension systems in small open and closed economies. We apply an overlapping-generations (OLG) model in its canonical form, where we consider endogenous fertility and growth generated by human capital accumulation. From the analysis, we conclude that in a small open economy, child allowances increase the number of children, yet decrease pension benefits over the long run. If we consider a closed economy, the effect of child allowances on fertility is ambiguous and remains negative on pension benefits over the long run.

Suggested Citation

  • Peter J. Stauvermann & Frank Wernitz, 2019. "Why Child Allowances Fail to Solve the Pension Problem of Aging Societies," Economies, MDPI, vol. 7(4), pages 1-16, December.
    • Handle: RePEc:gam:jecomi:v:7:y:2019:i:4:p:117-:d:294492
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