Economic growth and stability with public PAYG pensions and private intra-family old-age insurance

Fanti, Luciano and Gori, Luca (2010): Economic growth and stability with public PAYG pensions and private intra-family old-age insurance.

Abstract

This paper investigates the steady state and dynamical effects of two historical alternatives as a means of old-age insurance – i.e., voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions –, in a general equilibrium overlapping generations model with children as a desirable good. It is shown that the shift from a private system of old-age insurance to a public system of social security increases GDP per worker. Moreover, although in both cases the dynamics of capital, under myopic expectations, may be globally unstable depending on the size of the (private as well as public) inter-generational transfer, we show that such a shift significantly reduces, for plausible economies, the risk of cyclical instability which otherwise would be dramatically high, especially in countries with high degree of parsimony and low preference for children.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous fertility; Myopic foresight; OLG model; Private old-age support; Public PAYG pensions
• Subjects: H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; J - Labor and Demographic Economics > J1 - Demographic Economics > J14 - Economics of the Elderly ; Economics of the Handicapped ; Non-Labor Market Discrimination; J - Labor and Demographic Economics > J1 - Demographic Economics > J18 - Public Policy; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J26 - Retirement ; Retirement Policies; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium

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