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Social Security Reform in a Dynastic Life-Cycle Model with Endogenous Fertility

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  • Radim Bohacek
  • Volha Belush

Abstract

This paper studies the effects of a fully funded social security reform with endogenous fertility in a detailed, general equilibrium life-cycle model with dynasties whose members differ in skills and life uncertainty. We find that as high skill households tend to save relatively more in assets than in children, models with exogenous fertility underestimate the aggregate capital stock in the PAYG steady state. These models also predict that the capital stock increases after the fully funded reform. However, because the high skill households respond to the reform by having more children and investing less in assets and intergenerational transfers, the average fertility increases and the aggregate capital stock falls. The welfare gains from the elimination of social security seem to more than compensate the agents for the lost insurance against life-span and earnings risks.

Suggested Citation

  • Radim Bohacek & Volha Belush, 2009. "Social Security Reform in a Dynastic Life-Cycle Model with Endogenous Fertility," CERGE-EI Working Papers wp381, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp381
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    References listed on IDEAS

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    More about this item

    Keywords

    Fertility; Social Security; Fiscal Policy; Public Expenditures; Taxation.;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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