Economic growth and stability with public pay-as-you-go pensions and private intra-family old-age insurance |
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| Authors: | Luciano Fanti Luca Gori |
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| Institution: | 1. European University Institute, Florence, Italy;2. Institute for International Economic Studies (IIES), Stockholm University, 10691 Stockholm, Sweden;3. CESifo, Munich, Germany;4. Bocconi University and IGIER, Italy;5. IFS, United Kingdom;6. CEPR, United Kingdom;1. University of Warsaw, Poland;2. National Bank of Poland, Poland;1. Business School, Shanghai Second Polytechnic University, China;2. Actuarial Program Director, Illinois State University, Normal, IL 61790-4520, USA;3. School of Finance, Shanghai University of Finance and Economics, Guoding Rd 777, Shanghai 200433, China |
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| Abstract: | This paper compares the steady-state and dynamic outcomes of two historical alternatives as a means of old-age insurance, namely, voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions, in a general equilibrium overlapping generations model with children as a desirable good. We show that the shift from a private system of old-age support to public pensions increases the gross domestic product (GDP) per worker. Moreover, although in both cases the steady-state stock of capital, under myopic expectations, may be (globally) unstable depending on the size of the inter-generational transfer, we show that the existence of public pensions rather than private intra-family gifts considerably reduces the possibility of cyclical instability. |
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