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Endogenous Fertility, Endogenous Growth and Public Pension System: Should We Switch from a PAYG to a Fully-Funded System?

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  • Yeopil Yoon
  • Gabriel Talmain

Abstract

This paper studies the implications of state pension plan reform on fertility and on growth. It extends the Grossman and Yanagawa (1993) endogenous growth framework by incorporating altruism, making fertility endogenous. We investigate the effect on long-run growth of a switch from a Pay-As-You-Go (PAYG) pension system to a fully-funded system. We show that a PAYG pension system is associated with a lower fertility rate than a fully-funded system. This lower fertility in turn increases the rate of growth. Hence, switching from a PAYG system to a fully-funded system may be harmful, especially for developing countries in which limited resources are heavily stressed by high fertility rates. In addition, we propose a hypothetical pension system, the Saving Subsidy Program (SSP), which would yield a higher growth rate than the PAYG system. The SSP consists of a minimum benefit level for each retiree and of a subsidy to private savings.

Suggested Citation

  • Yeopil Yoon & Gabriel Talmain, "undated". "Endogenous Fertility, Endogenous Growth and Public Pension System: Should We Switch from a PAYG to a Fully-Funded System?," Discussion Papers 00/31, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:00/31
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    References listed on IDEAS

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    1. Gale, William G & Scholz, John Karl, 1994. "IRAs and Household Saving," American Economic Review, American Economic Association, vol. 84(5), pages 1233-1260, December.
    2. David E. Altig & Jagadeesh Gokhale, 1997. "Social Security privatization: a simple proposal," Working Papers (Old Series) 9703, Federal Reserve Bank of Cleveland.
    3. Nishimura, Kazuo & Zhang, Junsen, 1992. "Pay-as-you-go public pensions with endogenous fertility," Journal of Public Economics, Elsevier, vol. 48(2), pages 239-258, July.
    4. Martin Feldstein & Andrew Samwick, 1998. "The Transition Path in Privatizing Social Security," NBER Chapters, in: Privatizing Social Security, pages 215-264, National Bureau of Economic Research, Inc.
    5. Keith Blackburn & Giam Pietro Cipriani, 1998. "Endogenous fertility, mortality and growth," Journal of Population Economics, Springer;European Society for Population Economics, vol. 11(4), pages 517-534.
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    Cited by:

    1. Michele BOLDRIN & Mariacristina DE NARDI & Larry E. JONES, 2015. "Fertility and Social Security," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 261-299, September.
    2. Ulrich van Suntum, "undated". "A way out of pay-as-you-go without a double burden," Working Papers 200105, Institute of Spatial and Housing Economics, Munster Universitary.
    3. Johannes Holler, 2007. "Pension Systems and their Influence on Fertility and Growth," Vienna Economics Papers 0704, University of Vienna, Department of Economics.
    4. Koichi Miyazaki, 2013. "Pay-as-you-go social security and endogenous fertility in a neoclassical growth model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(3), pages 1233-1250, July.
    5. Zou, Tieding, 2016. "人口冲击、环境变动与家庭养老——基于多因素分解视角 [Effects of Population and Environment Changing on Family Pension——Based on the perspective of Its Factors]," MPRA Paper 79760, University Library of Munich, Germany, revised 16 Jan 2017.
    6. van Suntum, Ulrich, 2010. "A way out of pay-as-you-go without a double burden," CAWM Discussion Papers 27, University of Münster, Münster Center for Economic Policy (MEP).

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