Are the social security benefits of pensions or child-care policies best financed by a consumption tax?

Jinno, Masatoshi and Yasuoka, Masaya (2016): Are the social security benefits of pensions or child-care policies best financed by a consumption tax?

Abstract

Our paper sets an endogenous fertility model and examines how tax revenues derived from a consumption tax should be used for social security benefits such as pension and child-care policies. An additional pension financed by a consumption tax can achieve Pareto-improving allocations. Child allowances and an education subsidy decrease the older generation's utility because of tax burdens and the lack of additional benefit. Even if child allowances can raise the share of young people in society and some future generation's utility, that future generation's utility decreases because of a decrease in income growth. However, with certain parametric conditions, an education subsidy can raise every generation's utility, except for that of the older generation, because of the increase in income growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous fertility, Human capital, Child allowance, Education subsidy, Pension
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H5 - National Government Expenditures and Related Policies > H55 - Social Security and Public Pensions; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I20 - General; J - Labor and Demographic Economics > J1 - Demographic Economics > J13 - Fertility ; Family Planning ; Child Care ; Children ; Youth

References

[1] Adema Y., B. van Groezen and L. Meijdam (2009). "Population Ageing and the International Capital Market," Netspar Panel Papers, Tilbrug University.

[2] Apps P. and R. Rees (2004). "Fertility, Taxation and Family Policy," Scandinavian Journal of Economics 106(4), 745-763.

[3] Becker G.S., K.M. Murphy and R. Tamura (1990). "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98(5-2), S12-S37.

[4] Cremer H., F. Gahvari and P. Pestieau (2011). "Fertility, Human Capital Accumulation, and the Pension System," Journal of Public Economics 95, 1272-1279.

[5] Day C. (2012). "Economic Growth, Gender Wage Gap and Fertility Rebound," Economic Record 88, 88-99.

[6] de la Croix D. and M. Doepke (2003). "Inequality and Growth: Why Differential Fertility Matters?" American Economic Review 93(4), 1091-1113.

[7] de la Croix D. and M. Doepke (2004). "Public versus Private Education When Differential Fertility Matters," Journal of Development Economics 73, 607-629.

[8] Fanti L. and L. Gori (2009). "Population and Neoclassical Economic Growth: A New Child Policy Perspective," Economics Letters 104, 27-30.

[9] Galor O. and N. Weil (1996). "The Gender Gap, Fertility, and Growth," American Economic Review 86-3, 374-387.

[10] Glomm G. and B. Ravikumar (1992). "Public versus Private Investment in Human Capital: Endogenous Growth and Income Inequality," Journal of Political Economy 100(4), 818-834.

[11] Groezen B. van, T. Leers and L. Meijdam (2003). "Social Security and Endogenous Fertility: Pensions and Child Allowances as Siamese Twins," Journal of Public Economics 87, 233- 251.

[12] Groezen B. van and L. Meijdam (2008). "Growing Old and Staying Young: Population Policy in an Ageing Closed Economy," Journal of Population Economics 21(3), 573-588.

[13] Hirazawa M. and A. Yakita (2009). "Fertility, Child Care Outside the Home, and Pay-As- You-Go Social Security," Journal of Population Economics 22(3), 565-583.

[14] Laroque G. and B. Salanie (2005). "Does Fertility Respond to Financial Incentives?," CEPR Discussion Paper Series, No. 5007. London: Center for Economic Policy Research.

[15] Lin S. and X. Tian (2003). "Population Growth and Social Security Financing," Journal of Population Economics 16, 91-110.

[16] Ferrero M. D. and A. Iza (2004). "Skill Premium Effects on Fertility and Female Labor Force Supply," Journal of Population Economics 17, 1-16.

[17] Meier V. and M. Wrede (2010) "Pensions, Fertility, and Education," Journal of Pension Economics and Finance 9(1), 75-93.

[18] Nishimura K. and J. Zhang (1992). "Pay-as-you-go Public Pensions with Endogenous Fertility," Journal of Public Economics 48(2), 239-258.

[19] Oshio T. (2001). "Child-Care Reform in Pension System and the Fertility Rate (in Japanese)," Quarterly of Social Security Research 36-4, 535-546.

[20] Oshio T. and M. Yasuoka (2009). "Maximum Size of Social Security in a Model of Endogenous Fertility," Economics Bulletin 29(2), 656-666.

[21] Peters W. (1995) "Public Pensions, Family Allowances and Endogenous Demographic Change," Journal of Population Economics 8, 161-183.

[22] Sleebos, J. E. (2003). "Low Fertility Rates in OECD Countries: Facts and Policy Responses," OECD Social, Employment and Migration Working Papers No. 15.

[23] Tamura R. (1994). "Fertility, Human Capital and theWealth of Families," Economic Theory 4, 593-603.

[24] Wigger, B.U. (1999). "Pay-as-you-go Financed Public Pensions in a Model of Endogenous Growth and Fertility," Journal of Population Economics 12(4), 625-640.

[25] Wigniolle B. (2002). "Fertility, Intergenerational Transfers and Economic Development," Journal of International Trade & Economic Development 11(3), 297-321.

[26] Yakita A. (2010)."Human Capital Accumulation, Fertility and Economic Development," Journal of Economics 99(2), 97-116.

[27] Yasuoka M. (2006). "The Relationship between the Fertility Rate and Tax policy (in Japanese)," Quarterly Journal of Social Security Research 42-1, 80-90.

[28] Yasuoka M. and A. Miyake (2010). "Change in the transition of fertility rate," Economics Letters 106(2), 78-80.

[29] Yasuoka M. and N. Goto (2011). "Pension and Child Care Policies with Endogenous Fertility," Economic Modelling 28(6), 2478-2482.

[30] Yasuoka M. and A. Miyake (2014). "Fertility Rate and Child Care Policies in a Pension System," Economic Analysis and Policy 44(1), 122-127.

[31] Zhang J. (1995). "Social Security and Endogenous Growth," Journal of Public Economics 58, 185-213.

[32] Zhang J. (1997). "Fertility, Growth and Public Investments in Children," Canadian Journal of Economics 30(4a), 835-843.

[33] Zhang J. and R. Casagrande (1998). "Fertility, Growth, and Flat-Rate Taxation for Education Subsidies," Economics Letters 60, 209-216.

[34] Zhang J. and J. Zhang (1998). "Social Security, Intergenerational Transfers, and Endogenous Growth," Canadian Journal of Economics 31-5, 1225-1241.

[35] Zhang J. and J. Zhang (2004). "How Does Social Security Affect Economic Growth? Evidence from Cross-Country Data," Journal of Population Economics 17, 473-500.

[36] Zhang J. and J. Zhang (2007). "Optimal Social Security in a Dynastic Model with Investment Externalities and Endogenous Fertility," Journal of Economic Dynamics & Control 31, 3545-3567.