Skip to main content

Population aging and PAYG pensions in the OLG model

Abstract

This paper shows the effects on a pay-as-you-go pension system of the demographic change in the standard overlapping generations model. Firstly, we consider a setting with exogenous fertility and then a model with endogenous fertility. In both cases, population aging due to increased longevity implies a reduction in pensions payouts.

This is a preview of subscription content, access via your institution.

Notes

  1. Although this is an obvious limitation of our theory, it allows us to compare the results with those obtained by the large literature working with the “canonical” overlapping generations model.

  2. A well-known empirical regularity of growth is that the capital share in added value, α, is about one third.

  3. Similar results have been obtained by Fanti and Gori (2008). However, in that paper, the child-rearing cost was not considered, while here it affects negatively both k  ∗  and p  ∗ .

  4. In a similar setting, a discussion paper by Fanti and Gori (2009) assumes a fixed cost of child rearing. Here, instead, the time cost of child rearing introduces an additional negative substitution effect on fertility following an increase in longevity.

References

  • Alders P, Broer DP (2005) Ageing, fertility and growth. J Public Econ 89:1075–1095

    Article  Google Scholar 

  • Blackburn K, Cipriani GP (2002) A model of longevity, fertility and growth. J Econ Dyn Control 26:187–204

    Article  Google Scholar 

  • Cigno A (1993) Intergenerational transfers without altruism: family, market and state. Eur J Polit Econ 9:505–518

    Article  Google Scholar 

  • Cigno A (2006) A Constitutional theory of the family. J Popul Econ 19:259–283

    Article  Google Scholar 

  • Cigno A (2010) How to avoid a pension crisis: a question of intelligent system design. Cesifo Econ Stud 56:21–37

    Article  Google Scholar 

  • Cipriani GP, Makris M (2012) PAYG pensions and human capital accumulation: some unpleasant arithmetic. Manch Sch 80:429–446

    Article  Google Scholar 

  • Cremer H, Gahvari F, Pestieau P (2006) Pensions with endogenous and stochastic fertility. J Public Econ 90:2303–2321

    Article  Google Scholar 

  • Cremer H, Gahvari F, Pestieau P (2011) Fertility, human capital, and the pension system. J Public Econ 95:1272–1279

    Article  Google Scholar 

  • Ehrlich I, Lui F (1998) Social security, the family and economic growth. Econ Inq 36:390–409

    Article  Google Scholar 

  • Fanti L, Gori L (2008) Longevity and PAYG pension systems sustainability. Econ Bull 10(2):1–8

    Google Scholar 

  • Fanti L, Gori L (2009) Longevity, fertility and PAYG pension systems sustainability. University of Pisa, Department of Economics—Discussion Paper, no. 77

  • Fanti L, Gori L (2012) Fertility and PAYG pensions in the overlapping generations Model. J Popul Econ 25:955–961

    Article  Google Scholar 

  • Michel P, Pestieau P (1993) Population growth and optimality. J Public Econ 6:353–362

    Google Scholar 

  • Nishimura K, Zhang J (1992) Pay-as-you-go public pensions with endogenous fertility. J Public Econ 48:239–258

    Article  Google Scholar 

  • Rosati FC (1996) Social security in a non-altruistic model with uncertainty and endogenous fertility. J Public Econ 60:283–294

    Article  Google Scholar 

  • Wigger BU (1999) Pay-as-you-go financed public pensions in a model of endogenous growth and fertility. J Popul Econ 12:625–640

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Giam Pietro Cipriani.

Additional information

Responsible editor: Alessandro Cigno

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Cipriani, G.P. Population aging and PAYG pensions in the OLG model. J Popul Econ 27, 251–256 (2014). https://doi.org/10.1007/s00148-013-0465-9

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00148-013-0465-9

Keywords

  • PAYG pensions
  • Fertility
  • Longevity

JEL Classification

  • J13
  • H55