Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232770 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14018
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper studies retirement and child support policies in a small, open, overlapping-generations economy with PAYG social security and endogenous retirement and fertility decisions. It demonstrates that neither fertility nor retirement choices necessarily coincide with socially optimal allocation, because agents do not take into account the externalities of fertility and the elderly labor supply in the economy as a whole. It shows that governments can realize the first-best allocation by introducing a child allowance scheme and a subsidy to incentivize the labor supply of older workers. As an alternative to subsidizing the elderly labor supply, we show that the first-best allocation can also be achieved by controlling the retirement age. Finally, the model is simulated in order to study whether the policies devoted to realizing the social optimum in a market economy could be a Pareto improvement.
Subjects: 
PAYG pensions
social security
endogenous fertility
endogenous retirement
JEL: 
D10
H2
H55
J13
J18
J26
Document Type: 
Working Paper

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