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On the optimality of PAYG pension systems in an endogenous fertility setting

Published online by Cambridge University Press:  04 May 2004

G. ABÍO ,
G. MAHIEU  and
C. PATXOT
G. ABÍO
Affiliation:
Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, Avda. Diagonal 690, 08034 Barcelona, Spain (e-mail: abio@ub.edu)
G. MAHIEU
Affiliation:
National Bank of Belgium, 1000 Bruxelles, Belgium (e-mail: geraldine.mahieu@nbb.be)
C. PATXOT
Affiliation:
Facultat de Ciències Econòmiques i Empresarials, Universitat de Barcelona, Avda. Diagonal 690, 08034 Barcelona, Spain (e-mail: cio.patxot@ub.edu)
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Abstract

In order to help in designing an accurate pension reform, we determine the resource allocation in an endogenous fertility model that generates an endogenous demographic transition by means of distinguishing between female and male labor. We analyze the problem of the optimal solution and characterize the decentralization of the first best. We show that a pension policy linking pension benefits to the number of children acts as a corrective tax system able to restore both the optimal capital stock and the optimal rate of population growth as a single instrument. We also show that neither a Beveridgean pension scheme nor a Bismarckian one can decentralize the first best.

Type
Research Article
Information
Journal of Pension Economics & Finance , Volume 3 , Issue 1 , March 2004 , pp. 35 - 62
Copyright
2004 Cambridge University Press

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Footnotes

The authors gratefully acknowledge financial help from the Project SEC2002-00019 and Fundación BBV. We also thank the participants of the 17th annual congress of the European Economic Association (EEA) held in Venice in August 2002 and two anonymous referees for helpful comments.