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Fertility and PAYG Pensions in an Overlapping Generations Model with Endogenous Retirement

Chen, Hung-Ju (2015): Fertility and PAYG Pensions in an Overlapping Generations Model with Endogenous Retirement.

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Abstract

This paper develops an overlapping generations model with endogenous retirement to examine the effect of fertility on long-run pay-as-you-go (PAYG) pensions. We find that pensions may not necessarily increase with the fertility rate. An increase in the fertility rate will raise pensions if the output elasticity of capital and the tax rate are sufficiently low, but such a change will reduce pensions if the fertility rate is sufficiently high. Our results also indicate that raising the fertility rate is more likely to reduce pensions in developing countries than in developed countries, while such a change tends to raise pensions for countries in which the costs of raising children are low.

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