PAYG pensions, tax-cum-subsidy and optimality

Luciano Fanti and Luca Gori ()

MPRA Paper from University Library of Munich, Germany

Abstract: Using a simple OLG small open economy with endogenous fertility we show that the command optimum can be decentralised in a market setting using both a PAYG transfer from the young (old) to the old (young) and a tax-cum-subsidy (subsidy-cum-tax) policy, to redistribute within the working age generation. The latter instrument, in fact, reduces (increases) the opportunity cost of bearing children and, hence, stimulates (depresses) fertility. The policy implications are straightforward: when PAYG transfers exist and child rearing is time consuming, a tax-cum-subsidy (subsidy-cum-tax) policy can be used to internalise the externality of children, while also representing a Pareto improvement.

Keywords: Overlapping generations; PAYG Pensions; Small open economy; Tax-cum-subsidy (search for similar items in EconPapers)
JEL-codes: H24 H55 J13 J26 (search for similar items in EconPapers)
Date: 2010-01-23
New Economics Papers: this item is included in nep-dge and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20219

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