Fertility, human capital accumulation, and the pension system

Helmuth Cremer, Firouz Gahvari and Pierre Pestieau

No 2010054, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper provides a unified treatment of externalities associated with fertility and human capital accumulation within pas-as-you-go pension systems. It considers an overlapping generations model in which every generation consists of high earners and low earners with the proportion of types being determined endogenously. The number of children is deterministically chosen but the children’s future ability is in part stochastic, in part determined by the family background, and in part through education. In addition to the customary externality source associated with a change in average fertility rate, this setup highlights another externality source. This is due to the effect of a parent’s choice of number and educational attainment of his children on the proportion of high- ability individuals in the steady state. Our other results include: (i) Investments in education of high- and low-ability parents must be subsidized; (ii) direct child subsidies to one or both parent types can be negative; i.e., they can be taxes; (iii) net subsidies to children (direct child subsidies plus education subsidies) to at least one type of parents must be positive; (iv) parents who have a higher number of children should invest less in their education.

Keywords: pay-as-you-go social security; endogenous fertility; education; endogenous ratio of high to low ability types; three externality sources; education subsidies; child subsidies (search for similar items in EconPapers)
JEL-codes: H2 H5 (search for similar items in EconPapers)
Date: 2010-09-01
New Economics Papers: this item is included in nep-dge, nep-edu, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Fertility, human capital accumulation, and the pension system (2011)
Working Paper: Fertility, human capital accumulation, and the pension system (2011)
Working Paper: Fertility, Human Capital Accumulation, and the Pension System (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2010054

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