Munich Personal RePEc Archive

Fertility-related pensions and cyclical instability

Fanti, Luciano and Gori, Luca (2010): Fertility-related pensions and cyclical instability.

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Abstract

We show that the introduction of unfunded public pensions in a Cobb-Douglas economy with overlapping generations and endogenous fertility may cause complex economic cycles when individuals are short-sighted. In particular, the risk of cyclical instability increases with both the individual degree of thriftiness and the relative weight of individual fertility in the pension system. Our results provide a possible explanation of the occurrence of persistent cycles in an overlapping generations context and represent a policy warning about the dramatic destabilising effects of a fertility-related pension reform.

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