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Fertility, retirement age, and pay‐as‐you‐go pensions

Hung-Ju Chen

Journal of Public Economic Theory, 2018, vol. 20, issue 6, 944-961

Abstract: This paper develops an overlapping generations model with exogenous and endogenous retirement age to examine the effects of fertility and retirement age on long‐run pay‐as‐you‐go pensions. For both cases, we find that pensions may not necessarily increase with the fertility rate. In the case with exogenous retirement age, a higher fertility rate (retirement age) raises (reduces) pension benefits if the fertility rate and official pension age are low, whereas this result reverses otherwise. In the case with endogenous retirement age, a higher fertility rate raises pensions if the fertility rate and costs of raising children are low; otherwise, such a change decreases pensions. Our numerical results indicate that, under a reasonable range of parameterization, raising the fertility rate is more likely to increase pensions in the case with exogenous retirement age, whereas such a change tends to reduce pensions in the case with endogenous retirement age.

Date: 2018
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