Public Pensions and Growth

34 Pages Posted: 21 Jul 2003  

Stephane Lambrecht

GREMARS & University of Lille

Philippe Michel

National Center for Scientific Research (CNRS) - GREQAM (Deceased)

Jean-Pierre Vidal

European Central Bank (ECB)

Date Written: November 2001

Abstract

System and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient.

Keywords: public pension; education; growth

JEL Classification: H55, I20, D91

Suggested Citation

Lambrecht, Stephane and Michel, Philippe and Vidal, Jean-Pierre, Public Pensions and Growth (November 2001). ECB Working Paper No. 90. Available at SSRN: https://ssrn.com/abstract=356268

Stephane Lambrecht

GREMARS & University of Lille ( email )

104, avenue du peuple Belge
Villeneuve d'Ascq Cedex, 59655
France

Philippe Michel

National Center for Scientific Research (CNRS) - GREQAM (Deceased)

N/A

Jean-Pierre Vidal (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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