Public pensions and growth

Stéphane Lambrecht, Philippe Michel and Jean-Pierre Vidal

No 90, Working Paper Series from European Central Bank

Abstract: This paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient JEL Classification: H55, I20, D91

Keywords: education; growth; public pension (search for similar items in EconPapers)
Date: 2001-11
Note: 147733
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Public pensions and growth (2005)
Working Paper: Public pensions and growth (2005)
Working Paper: Public pensions and growth (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:200190

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