We investigate the effects of pay-as-you-go pension and child allowances on fertility, labor supply of the old, and welfare. For this purpose, we analyze a small open overlapping-generations model in which fertility and an old agent’s labor supply (retirement time) are endogenized with pay-as-you-go pension and child allowances. We find that how the pay-as-you-go pension tax rate affects the fertility rate depends on whether an old agent retires. When an old agent fully retires, then the size of the interest rate and fertility rate determine the effect of the pay-as-you-go pension tax rate on the fertility rate. When an old agent works, the pay-as-you-go pension tax rate certainly reduces the fertility rate. In addition, how child allowances affect the fertility rate depends on whether an old agent works. If an old agent retires fully, then an increase in the child allowance tax rate increases the fertility rate. When an old agent works, this is not necessarily true, which suggests that an old agent’s labor status should be taken into account when we evaluate the effects of the social security system on economic variables. In addition, we examine the effect of the social security tax rates on welfare and provide numerical examples.
van Groezen, Bas, Theo Leers, and Lex Meijdam. 2003. “Social Security and Endogenous Fertility: Pensions and Child Allowances as Siamese Twins.” Journal of Public Economics 87: 233–251.10.1016/S0047-2727(01)00134-7)| false
Zhang, Jie, and Junsen Zhang. 2003. “Long-Run Effects of Unfunded Social Security with Earnings-Dependent Benefits.” Journal of Economic Dynamics and Control 28: 617–641.10.1016/S0165-1889(03)00037-X)| false
The B.E. Journal of Macroeconomics publishes significant research and scholarship in theoretical and applied macroeconomics. The range of topics includes business cycle research, economic growth, and monetary economics, as well as topics drawn from the substantial areas of overlap between macroeconomics and international economics, labor economics, finance, development economics, political economy, public economics, econometric theory.
01 Nov 2001
Arpad Abraham, Eva Carceles-Poveda, Davide Debortoli, Felipe Schwartzman and Pengfei Wang