Pensions with heterogenous individuals and endogenous fertility
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We study the design of pension schemes when fertility is endogenous and parents differ in ability to raise children. Pay-as-you-go schemes require, under perfect information, a marginal subsidy on fertility to correct for the externality they create, equal pensions, and contributions that increase or decrease with the number of children. Under asymmetric information, incentive-related distortions supplement the Pigouvian subsidy. These require an additional subsidy or an offsetting tax depending on whether the redistribution is towards people with more or with less children. In the former case, pensions are decreasing in the number of children; otherwise, they are increasing.
KeywordsPay-as-you-go social security Endogenous fertility Redistribution
JEL ClassificationsH55 J13
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- Cremer H, Gahvari F, Pestieau P (2003) Stochastic fertility, moral hazard, and the design of pay-as-you-go pension plans. Paper presented at CESifo Venice Summer InstituteGoogle Scholar
- Cremer H, Gahvari F, Pestieau P (2006) Pensions with endogenous and stochastic fertility. J Public Econ (in press)Google Scholar