Fertility and pension systems

Rizzo, Giuseppe (2009): Fertility and pension systems.

Abstract

In the last century, state pension systems have been introduced in most countries, and since then their size has been significantly increasing. A broad literature has studied this phenomenon, developing models that explain why pension systems exist and have been continuously expanding. At the same time, many authors have suggested that pension systems may substitute children as old-age economic security, discouraging fertility. In particular, this fact may explain the contemporaneity of the expansion of pension systems with the urbanization and industrialization processes. These two processes, in fact, have contributed to the weakening of family ties, which in turn results in the need for additional old-age economic security. In the political economy research these effects have been ignored, as the fertility choice is usually considered exogenous. This paper suggests a model that takes into account this endogenous effect and tries to analyze the net effect of the breakdown of family ties on the dimension of pension systems. The last section presents some empirical results supporting the theoretical model. The main result is that the transition toward the weak family does not necessarily imply an increase in the size of pension systems, because as the family structure becomes weaker the fertility decreases, thus reducing the profitability of the scheme: as the weak families start to increase, there could be an increase in the size of the pension system, but as they become the majority, the fertility rate may become too low, and the political support for the pension system may decrease.

• Item Type: MPRA Paper
• Language: English
• Keywords: Family economics; Fertility; Political sustainability; Social security; Voting
• Subjects: J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility ; Family Planning ; Child Care ; Children ; Youth; J - Labor and Demographic Economics > J1 - Demographic Economics > J14 - Economics of the Elderly ; Economics of the Handicapped ; Non-Labor Market Discrimination; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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