Investing for the old age: pensions, children and savings

Vincenzo Galasso, Roberta Gatti and Paola Profeta

No 47101, Social Protection Discussion Papers and Notes from The World Bank

Abstract: In the last century most countries have experienced both an increase in pension spending and a decline in fertility. The authors argue that the interplay of pension generosity and development of capital markets is crucial to understand fertility decisions. Since children have traditionally represented for parents a form of retirement saving, particularly in economies with limited or non-existent capital markets, an exogenous increase of pension spending provides a saving technology alternative to children, thus relaxing financial (saving) constraints and reducing fertility. The authors build a simple two-period overlapping generations (OLG) model to show that an increase in pensions is associated with a larger decrease in fertility in countries in which individuals have less access to financial markets. Cross-country regression analysis supports result: an interaction between various measures of pension generosity and a proxy for the development of financial markets consistently enters the regressions positively and significantly, suggesting that in economies with limited financial markets, children represent a way for parents to save for old age, and that increases in pensions amount effectively to relaxing these constraints.

Keywords: Debt Markets; Population Policies; Emerging Markets; Pensions&Retirement Systems (search for similar items in EconPapers)
Date: 2008-12-01
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Investing for the old age: pensions, children and savings (2009)
Working Paper: Investing for the Old Age: Pensions, Children and Savings (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:hdnspu:47101

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