Social security, intergenerational transfers, and endogenous growth
01 Nov 1998-Canadian Journal of Economics (Blackwell Publishing, Inc. The Journal's web site is located at http://www.blackwellpublishing.com/journals/CJE)-Vol. 31, Iss: 5, pp 1225-1241
TL;DR: In this paper, the effects of social security in a simple model of endogenous growth with alternative motives of having children are analyzed, and the effects depend on the size of the social security tax, the motive to have children, and a pattern of intergenerational transfers.
Abstract: In this paper, the effects of social security in a simple model of endogenous growth with alternative motives of having children are analyzed. It shows how the effects of social security depend on the size of the social security tax, the motive to have children, and the pattern of intergenerational transfers. The pattern of intergenerational transfers itself, however, is shown to change with the social security tax rate. When the social security tax is not too high, social security increases per capita income growth and tends to enhance welfare.
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TL;DR: In this article, the authors analyzed public pensions and child support in a model with endogenous fertility and showed that individual fertility choice may not coincide with the social optimum, due to the existence of external effects of children on society as a whole.
233 citations
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TL;DR: In this paper, the allocation of government expenditures between two major outlays -education and pay-as-you-go social security - affects human capital distribution in an economy with heterogeneous agents.
Abstract: We study how the allocation of government expenditures between two major outlays - education and pay-as-you-go social security - affects human capital distribution in an economy with heterogeneous agents. We consider an overlapping generations economy where the government maintains both programs, and allocates tax revenues to finance them. In our model, human capital is one of the factors of production. It is itself produced as a combined result of public inputs and private inputs. Parents' decisions to invest time and material resources in education of their children are motivated by altruism, heterogeneous in its strength across the population, which leads to heterogeneity of incomes. We investigate the effect of an increase in public funding for education on the human capital distribution. We show that in this framework, contrary to some earlier results, increased spending on public education may lead to higher inequality. Our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology.
78 citations
TL;DR: In this article, the effects of population aging on fertility and economic growth were investigated, and it was shown that an increase in life expectancy lowers the fertility rate and raises life-cycle savings.
Abstract: Investigating the effects of population aging on fertility and economic growth, we show that an increase in life expectancy lowers the fertility rate and raises life-cycle savings, and that a pay-as-you-go social security does not reverse the effect on fertility.
73 citations
TL;DR: In this article, the allocation of government expenditures between two major outlays (education and pay-as-you-go social security) is studied, and the effect of an increase in public funding for education on the human capital distribution is investigated.
Abstract: We study how the allocation of government expenditures between two major outlays—education and pay-as-you-go social security—affects human capital distribution in an economy with heterogeneous agents. We consider an overlapping generations economy where the government maintains both programs, and allocates tax revenues to finance them. In our model, human capital is one of the factors of production. It is itself produced as a combined result of public inputs and private inputs. Parents' decisions to invest time and material resources in education of their children are motivated by altruism, heterogeneous in its strength across the population, which leads to heterogeneity of incomes. We investigate the effect of an increase in public funding for education on the human capital distribution. We show that in this framework, contrary to some earlier results, increased spending on public education may lead to higher inequality. Our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology.
72 citations
TL;DR: In this paper, the relation between public pensions, fertility and child care in a closed-economy overlapping generations model with endogenous fertility was analyzed and it was shown that raising a child involves two social externalities and that it is optimal to introduce child allowances if the government redistributes income from the young to the old.
Abstract: This paper analyses the relation between public pensions, fertility and child care in a closed-economy overlapping generations model with endogenous fertility. It is shown that raising a child involves two social externalities and that it is optimal to introduce child allowances if the government redistributes income from the young to the old. The optimal child allowance rises when longevity increases. If the costs of raising children depend positively on the wage, a third externality arises and the returns to savings should be taxed.
68 citations
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TL;DR: In this article, the authors consider the effects of different types of intergenerational transfer schemes on the stock of public debt in the context of an overlapping-generations model and show that finite lives will not be relevant to the capitalization of future tax liabilities so long as current generations are connected to future generations by a chain of operative inter-generational transfers.
Abstract: The assumption that government bonds are perceived as net wealth by the private sector is crucial in demonstrating real effects of shifts in the stock of public debt. In particular, the standard effects of "expansionary" fiscal policy on aggregate demand hinge on this assumption. Government bonds will be perceived as net wealth only if their value exceeds the capitalized value of the implied stream of future tax liabilities. This paper considers the effects on bond values and tax capitalization of finite lives, imperfect private capital markets, a government monopoly in the production of bond "liquidity services," and uncertainty about future tax obligations. It is shown within the context of an overlapping-generations model that finite lives will not be relevant to the capitalization of future tax liabilities so long as current generations are connected to future generations by a chain of operative intergenerational transfers (either in the direction from old to young or in the direction from young to old). Applications of this result to social security and to other types of imposed intergenerational transfer schemes are also noted. In the presence of imperfect private capital markets, government debt issue will increase net wealth if the government is more efficient, at the margin, than the private market in carrying out the loan process. Similarly, if the government has monopoly power in the production of bond "liquidity services," then public debt issue will raise net wealth. Finally, the existence of uncertainty with respect to individual future tax liabilities implies that public debt issue may increase the overall risk contained in household balance sheets and thereby effectively reduce household wealth.(This abstract was borrowed from another version of this item.)
5,762 citations
"Social security, intergenerational ..." refers background in this paper
...The effects of such social security have been extensively analysed in models without endogenous per capita income growth (see, e.g., Feldstein 1974; Barro 1974; Becker and Barro 1988; Laitner 1988; Lapan and Enders 1990; and Seater 1993)....
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...7 This suggests that, in a sense, Barro's (1974) neutrality result holds here with respect to savings....
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TL;DR: This article developed the equilibrium conditions for a rational consumer's lifetime consumption-saving pattern, a problem more recently given by Harrod the useful name of "hump saving" but which Landry, Bbhm-Bawerk, Fisher, and others had touched on long before my time.
Abstract: M Y FIRST published paper' has come of age, and at a time when the subjects it dealt with have come back into fashion. It developed the equilibrium conditions for a rational consumer's lifetime consumption-saving pattern, a problem more recently given by Harrod the useful name of "hump saving" but which Landry, Bbhm-Bawerk, Fisher, and others had touched on long before my time.2 It dealt only with a single individual and did not discuss the mutual determination by all individuals of the
3,399 citations
TL;DR: In this paper, an economic analysis of the linkages in fertility rates and capital accumulation across generations is developed considering the determination of fertility and capital consumption in each generation when wage rates and interest rates are parameters to each family and to open economies.
Abstract: An economic analysis of the linkages in fertility rates and capital accumulation across generations is developed considering the determination of fertility and capital accumulation in each generation when wage rates and interest rates are parameters to each family and to open economies. The model is based on the assumption that parents are altruistic toward their children. The utility of parents depends on their own consumption and on the utility of each child and the number of children. By relating the utility of children to their own consumption and to the utility of their children a dynastic utility function was obtained that depends on the consumption and number of descendants in all generations. The term "reformulation" was used because of the emphasis on dynastic utility model of altruism toward children and deriving the budget constraint and utility function of a dynastic family the model was applied to the Great Depression and World War II. The 1st-order conditions to maximize utility imply that fertility in any generation depends positively on the real interest rate and the degree of altruism and negatively on the rate of growth in per capita consumption from 1 generation to the next. Consumption of each descendant depends positively on the net cost of rearing a desdendant. Applying the model it is shown that the analysis is consistent with baby busts during the Depression and the war and with a baby boom after the war. The effects on fertility of child mortality subsidies to (or taxes on) children and social security and other transfer payments to adults were considered. The demand for surviving children rises during the transition to low child mortality but demand for survivors return to its prior level once mortality stabilizes at a low level. Fertility falls in response to declines in international real interest rates and increases in an economys rate of technological progress. Extending the analysis to include life-cycle variations in consumption earnings and utility fertility emerges as a function of expenditures on the subsistence and human capital of children but not of expenditures that simply raise the consumption of children. The path of aggregate consumption in demographic steady states does not depend on interest rates time preference or other determinants of life-cycle variations in consumption.
1,081 citations
TL;DR: In this paper, the interaction between productive and nonproductive savings in economies with endogenous long-run growth was studied, and it was shown that bubbles, when they exist, retard the growth of the economy and reduce the welfare of all generations born after the bubble appears.
231 citations
"Social security, intergenerational ..." refers background in this paper
...As in Grossman and Yanagawa (1993), to ensure the existence of a balanced growth path for this economy, we adopt a particular functional form of A,:...
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TL;DR: In this article, an intergenerational model of optimum population growth is proposed, where the utility of each generation is a function of the level of its consumption and the number and utility of newly born people.
Abstract: The problem of population growth has been only partially formulated in an intertemporal context. Therefore, a link between population theory and economic growth theory is still missing.' This paper attempts to provide such a link by analyzing an intergenerational model of optimum population growth. The model accommodates the idea that decisions on increases in population should consider the new population's quality of life. This concept is elaborated upon in a static framework by Gary Becker and Gregg Lewis, Dennis De Tray and Robert Willis. Other literature on population growth, such as Harold Votey, disregards this consideration altogether.2 More explicitly, this paper assumes that the utility of each generation is a function of the level of its consumption and the number and utility of the newly born people. We are thus led to consider the utility of an infinite number of generations. This model differs from Paul Samuelson,s intergenerational model of pure consumption in which the utility of each generation depends only on that generation's own consumption. Recently, Philip Neher (1971) analyzed a model of fertility in primitive economies; it is based on the assumption that parents use children as investments to insure future consumption needs. Neher's analysis focuses entirely on the pension motive for having children;3 our model assumes that fertility is determined so as to balance the parents' welfare derived from additional children against that derived from the children's quality of life. We first outline a general model of optimum population growth. In order to discuss explicitly various economic aspects of population, we use a simple case in the analysis. Section I sets up the basic model.
189 citations