Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30657
Authors: 
Cremer, Helmuth
Gahvari, Firouz
Pestieau, Pierre
Year of Publication: 
2009
Series/Report no.: 
CESifo working paper 2736
Abstract: 
This paper provides a unified treatment of externalities associated with fertility and human capital accumulation as they relate to pension systems. It considers as 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 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 high-ability parents are always positive, and to low-ability parents can be positive or negative, (iv) either education subsidies or child subsidies, when used alone, can dominate the other instrument, (v) using child subsidy instruments alone entails a higher fertility rate and a lower ratio of high- to low-ability children, as compared to using education subsidies alone.
Subjects: 
pay-as-you-go social security
endogenous fertility
education, endogenous ratio of high to low ability types
three externality sources
education subsidies
child subsidies
JEL: 
H55
J13
Document Type: 
Working Paper

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