EconPapers    
Economics at your fingertips  
 

Private versus public old-age security

Richard Barnett (), Joydeep Bhattacharya () and Mikko Puhakka

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: We directly compare two institutions, a family compact—a parent makes a transfer to her parent in anticipation of a possible future gift from her children—with a pay-as-you-go, public pension system, in a life cycle model with endogenous fertility wherein children are valued both as consumption and investment goods. Absent intragenerational heterogeneity, we show that a benevolent government has no welfare justification for introducing public pensions alongside thriving family compacts since the former is associated with inefficiently low fertility. This result hinges critically on a fiscal externality—the inability of middle age agents to internalize the impact of their fertility decisions on old-age transfers under a public pension system. With homogeneous agents, a strong-enough negative aggregate shock to middle-age incomes destroys all family compacts, and in such a setting, an optimal public pension system cannot enter. This suggests the raison d’être for social security must lie outside of its function as a pension system—specifically its redistributive function which emerges with heterogeneous agents. In a simple modification of our benchmark model—one that allows for idiosyncratic frictions to compact formation such as differences in infertility/mating status—a welfare-enhancing role for a public pension system emerges; such systems may flourish even when family compacts cannot.

Date: 2017-12-01
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://lib.dr.iastate.edu/cgi/viewcontent.cgi?art ... on_las_workingpapers

Related works:
Journal Article: Private versus public old-age security (2018) Downloads
Working Paper: Private versus Public Old-Age Security (2012) Downloads
Working Paper: Private versus public old-age security (2012) Downloads
Working Paper: Private versus public old-age security (2012) Downloads
Working Paper: PRIVATE VERSUS PUBLIC OLD-AGE SECURITY (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genstf:201712010800001073

Access Statistics for this paper

More papers in ISU General Staff Papers from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().

 
Page updated 2021-10-09
Handle: RePEc:isu:genstf:201712010800001073