Linking Educational Loan Subsidies to Pay-as-you-go Pension Reforms

Kazui Sumizawa

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines public pension reform in a small open economy model where households fully finance education. Departing from previous studies that assume fully publicly funded education, we introduce loan interest subsidies on education in the presence of intergenerational transmission of human capital, which enables an earlier phase-out of pay as-you-go (PAYG) pensions in a Pareto-improving way. We extend the analysis to a closed economy where wages and interest rates are endogenously determined. By incorporating general equilibrium effects through factor prices, we show that loan interest subsidies make a Pareto-improving, gradual reduction of PAYG pensions feasible even in closed economies. This result highlights the efficiency gains from linking pension reform with educational loan support, in contrast to prior studies that overlook private education spending or factor price adjustments.

Keywords: intergenerational transmission; human capital; loan interest subsidies; pay-as-you-go pension; pension reforms (search for similar items in EconPapers)
JEL-codes: E62 H23 H55 (search for similar items in EconPapers)
Date: 2025-04-30
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:124645

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