Social Security and Demographic Trends: Theory and Evidence from the International Experience
State University of New York at Buffalo - Department of Economics; National Bureau of Economic Research (NBER); University of Chicago - University of Chicago Press; Institute for the Study of Labor (IZA)
Korea University - Department of Economics
Review of Economic Dynamics, Vol. 10, No. 1, pp. 55-77, January 2007
The worldwide problem with pay-as-you-go, defined-benefits social security systems is not just financial. Through a dynamic, overlapping-generations model where forming a family and bearing and educating children are choice variables, we show that social security taxes and benefits generate incentives to reduce both family formation and fertility, and that these effects cannot be fully neutralized by counteracting inter-temporal or intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years. We find that PAYG tax measures account for a non-trivial part of the downward trends in family formation and fertility worldwide, especially in OECD countries.
Number of Pages in PDF File: 23
Keywords: Social security, Family, Human capital, Marriage, Divorce, Fertility, Saving, Growth, Public pension
JEL Classification: J1, O1
Date posted: February 7, 2007
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