Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience

50 Pages Posted: 9 Mar 2005

See all articles by Isaac Ehrlich

Isaac Ehrlich

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)

Jinyoung Kim

SUNY at Buffalo, College of Arts & Sciences, Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

The worldwide problem with pay-as-you-go (PAYG) social security systems isn't just financial. This study indicates that these systems may have exerted adverse effects on key demographic factors, private savings, and long-term growth rates. Through a comprehensive endogenous-growth model where human capital is the engine of growth, family choices affect human capital formation, and family formation itself is a choice variable, we show that social security taxes and benefits can create adverse incentive effects on family formation and subsequent household choices, and that these effects cannot be fully neutralized by counteracting intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years (1960-92). We find that PAYG tax measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries.

Suggested Citation

Ehrlich, Isaac and Kim, Jinyoung, Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience (February 2005). NBER Working Paper No. w11121, Available at SSRN: https://ssrn.com/abstract=666004

Isaac Ehrlich (Contact Author)

State University of New York at Buffalo - Department of Economics ( email )

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HOME PAGE: http://arts-sciences.buffalo.edu/economics/faculty/faculty-directory/ehrlich.html

National Bureau of Economic Research (NBER) ( email )

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University of Chicago - University of Chicago Press ( email )

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Institute for the Study of Labor (IZA) ( email )

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Jinyoung Kim

SUNY at Buffalo, College of Arts & Sciences, Department of Economics ( email )

Buffalo, NY 14260
United States
716-645-2121 (Phone)

HOME PAGE: http://www.economics.buffalo.edu/jinyoung%20kim.html

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