Citation

Discussion Paper Details

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Title: The Pay-As You-Go Pension System as a Fertility Insurance and Enforcement Device

Author(s): Hans-Werner Sinn

Publication Date: November 1998

Keyword(s): Fertility, Migration, Public Pensions and Social Security

Programme Area(s): Public Economics

Abstract: It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for 'rotten kids' who are unwilling to pay their parents a pension. It is true that the system has a moral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale, this effect will not be strong enough to prevent a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment.

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Bibliographic Reference

Sinn, H. 1998. 'The Pay-As You-Go Pension System as a Fertility Insurance and Enforcement Device'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2023