Investment in children, social security, and intragenerational risk sharing

Simon Fan (), Yu Pang () and Pierre Pestieau
Additional contact information
Simon Fan: Lingnan University
Yu Pang: Macau University of Science and Technology

International Tax and Public Finance, 2022, vol. 29, issue 2, No 2, 286-315

Abstract: Abstract We analyze the role of pay-as-you-go social security in intragenerational risk sharing in an overlapping-generations model with individual heterogeneity. Parents invest in their children’s education in state schools in exchange for old-age financial support. Due to random factors such as luck in the job market, children may have different earning capacities despite that they receive the same education. Without social security, a parent gets a transfer payment from her own child, so the received amount is uncertain as it depends on the child’s earnings. The social security scheme, which essentially serves to pool transfer contributions from all children and then redistribute them equally to each parent, insures parents against the risk of educational investments. Our model shows that social security stimulates educational spending, enhances labor earnings, and increases ex ante individual utility. However, it may worsen ex post intragenerational inequality of lifetime income.

Keywords: Old-age insurance; Educational investment; Social security; Inter-family risk pooling; Income inequality (search for similar items in EconPapers)
JEL-codes: D81 H20 H55 I24 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Investment in children, social security, and intragenerational risk sharing (2021)
Working Paper: Investment in children, social security, and intragenerational risk sharing (2019)
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DOI: 10.1007/s10797-021-09664-3

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