22 October 2009
“Social Security Reform in a Dynastic Life-Cycle Model with Endogenous Fertility”
by Radim Bohacek (Czech Academy of Sciences and Charles University)
22 October 2009, h 12:00, Sala Rossa
This paper studies the effects of a fully funded social security reform with endogenous fertility in a detailed, general equilibrium life-cycle model with dynasties whose members differ in skills and life uncertainty. We find that as high skill households tend to save relatively more in assets than in children, models with exogenous fertility underestimate the aggregate capital stock in the PAYG steady state. These models also predict that the capital stock increases after the fully funded reform. However, because the high skill households respond to the reform by having more children and investing less in assets, the average fertility increases and the aggregate capital stock falls. The welfare gains from the elimination of social security seem to more than compensate the agents for the lost insurance against life-span and earnings risks. Finally, while in the fully funded system all parents rely on the old-age support from children during retirement, in the PAYG system only low skill parents receive transfers from their children.
J13 Fertility; H55 Social Security and Public Pensions; E62 Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
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