Adult Mortality Drops and the Effects of the Evolution from Private Intra-Family Gifts to Public Pensions

Since increasing attention is paid to consider the macroeconomic effects of the increasing longevity,we study an overlapping-generations model with endogenous fertility to investigate the steady-state anddynamic effects (with static expectations) of two historical alternatives as a means of old-age insurance:voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions. Weshow that the change from a private system of old-age insurance to a public system of social security hasfavoured the rise in capital accumulation while also reducing cyclical instability in countries where longevityis large enough. In contrast, when adult mortality is high such a change makes an economy with publicpensions more prone to be subject to fluctuations, while also reducing the steady-state stock of capitaland GDP per worker. In addition, since the old-age insurance motive seems to prevail also in developedcountries with long-lived individuals such as Italy, our results may also be of interest for pension policies.