The Pay-as-You-Go Pension System as a Fertility Insurance and Enforcement Device

30 Pages Posted: 13 Jun 2000 Last revised: 25 Jul 2022

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

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Date Written: June 1998

Abstract

It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for rotten kid' who are unwilling to pay their parents a pension. It is true that the system has amoral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale this effect will not strong enough to prevent a welfare improvement. If scale of the system is so large that parents bequeath some of their pensions to their children overdrawn and creates unnecessarily strong disincentives for human capital investment.

Suggested Citation

Sinn, Hans-Werner, The Pay-as-You-Go Pension System as a Fertility Insurance and Enforcement Device (June 1998). NBER Working Paper No. w6610, Available at SSRN: https://ssrn.com/abstract=226332

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