A SAVINGS SUBSIDISATION SYSTEM IN A MODEL OF ENDOGENOUS FERTILITY AND ENDOGENOUS GROWTH: AN EXTENSION OF WIGGER (1999)

Population ageing is now an established demographic characteristic of many economies. Economists working in the endogenous growth theory tradition have sought to model the relationship between public pensions, financed on a 'Pay-As-You-Go' basis, and the growth in per capita incomes. The resultant intergenerational wealth redistribution from young to older people seems to decrease private savings, diminish capital accumulation, and lower the growth of per capita incomes. The underlying transmission mechanism appears to be a crowding out effect in private capital markets contingent upon the introduction of public pension systems. A growing literature exists on the interrelationships between public pension schemes, fertility rates and endogenous growth. Following Wigger's (1999) pioneering overlapping generations endogenous growth model, we extend this model to examine the effects of a savings subsidisation system on the rate of per capita income growth, fertility and voluntary intrafamily wealth transfers, where parents view children both as an insurance good and a consumption good. Moreover, children care about the consumption levels of their parents. An increase in contributions to a savings subsidised public pension scheme will crowd out private intergenerational transfers from the young to the old and thereby negate the usefulness of children as an insurance good.     

Intergenerational transfers,demographic transition,and altruism: Problems in developing Asia

This paper develops a three‐period overlapping‐generations model where middle‐aged agents care about not only their own lifetime utility but also their old parents' and children's well‐being. The doubly altruistic agents choose amounts of intergenerational transfers to their old parents and children as well as private savings. The government specifies amounts of public transfers from working adults to the dependents. The model also takes the effects of demographic transition on the burdens of supporting the elderly and children into account. Using 23 countries' data from the National Transfer Accounts (NTA ), we estimate the degrees of filial and parental altruism and adjust them for their respective life expectancy and fertility rates. The findings suggest that people in developing countries are more parentally altruistic than those in developed ones while the adjusted degree of filial altruism tends to be low in developing Asia. Our welfare analyses reveal that the developing Asian countries must introduce more comprehensive public welfare programs for the elderly to maximize social welfare. Moreover, their low adjusted degree of filial altruism may trap the developing Asian countries at the low levels of public old‐age support and social welfare as the further demographic transition ensues.     

Effect of social security on fertility and savings: an overlapping generations model

Old-age pension schemes do not exist in most developing countries, so adults bear children as security investments for the future. This phenomenon leads to unduly high rates of population growth. It has been hypothesized that introducing social security programs in such countries would increase savings rates and reduce the number of children born over the long term. The author studies the general equilibrium effects of some social security programs on rates of population growth and capital accumulation within an overlapping generations framework with endogenous fertility and savings. Specifically, Raul's overlapping generations growth model is extended to study the general equilibrium effects of payroll-tax-financed and child-tax-financed social security programs. It is shown that if the rate of intergenerational income transfers from young to old or child care cost is low, competitive equilibrium leads toward overpopulation and capital accumulation in a modified Pareto optimal sense; a social security program in such a case is therefore Pareto improving. A fully-funded system is not neutral when financed by child taxes. Finally, it is also shown that unlike in the case of exogenous fertility where competitive equilibrium attains steady state only asymptotically, fertility, when endogenous, may attain a unique globally steady state in finite time.     

From pro-natalist rhetoric to population policies in Turkey? An OLG general equilibrium analysis

We build an overlapping generation (OLG) general equilibrium model of Turkey with survival rates and endogenous labour supply to simulate the economic, fiscal, welfare, and intergenerational redistribution impacts of the medium and high fertility demographic scenarios projected by the United Nations. We assume that the high fertility variant is a realistic demographic proxy for pro-natalist policies in Turkey. Our results show that on a purely economic basis, a higher fertility scenario in Turkey appears open to criticisms as it cannot offset the social security pressures of ageing, and it also involves intergenerational welfare redistributions so that current young adults are unlikely to endorse natalist rhetoric and policies.     

Decreasing fertility,economic growth and the intergenerational wage gap

Persistent low fertility rates lead to lower population growth rates and eventually also to decreasing population sizes in most industrialized countries. There are fears that this demographic development is associated with declines in per capita GDP and possibly also increasing inequality of the wage distribution. We investigate whether this is true in the context of neoclassical growth models, augmented with endogenous fertility decisions and endogenous educational decisions. Furthermore we allow for imperfect substitutability across workers of different age in the production process and learning by doing effects as well as human capital depreciation. In particular, we assess the intergenerational wage redistribution effects which follow after a demographic change to persistent low fertility rates.     

The Transition to Market Economies in an Endogenous Growth Model with Altruistic Agents

This paper considers an endogenous transition from a self-sufficient traditional economy to a market economy and its consequences on fertility and growth. The transition can occur if private intergenerational transfers are unable to secure old-age consumption as adequately as savings on capital markets; otherwise individuals stay in the traditional economy unless the mass-production technology in the market economy is sufficiently more advanced than individually accessible technologies. Markets emerge only if per capita output exceeds a certain level given a fixed cost of forming markets. The transition reduces fertility and promotes growth under plausible restrictions.
JEL Classification : E 20; J 13; O 10     

Mortality, Fertility, and Saving in a Malthusian Economy

We develop a model of fertility choice by utility maximizing households, based on an explicit notion of intergenerational external effects. In contrast to previous economic literature, we assume that the external effects run from children to parents. This gives rise to a fundamentally different reason for bearing of children, as parents expect to be cared for, at least partially, by their children in their old age. We take the behavior of infant mortality since 1541 as the key exogenous variable and endogeneize the size of the transfer from children to parents by linking it to the endogenous savings and fertility choice of the parents. This generates a dynamic model of a Malthusian society that performs substantially better, qualitatively and quantitatively, than previous economic models of endogenous fertility.     

Leisure goods,education attainment and fertility choice

This paper proposes a novel mechanism for the fertility decline that occurred across the world since the late nineteenth century. It suggests that the rise in the cost of children relative to leisure goods in the process of development contributed to the decline in fertility. The paper develops a unified growth model in which children are substitutes for leisure goods in the parental utility function. The theory suggests that the rise in income, the decline in the relative price of leisure goods and the increase in educational attainment in the process of development speed up the demographic transition from high to low fertility and contributed to the transition from stagnation to growth.     

Living arrangements of the elderly in China: evidence from the CHARLS national baseline

Declining fertility in China has raised concerns about elderly support, especially when public support is inadequate. Using rich information from the nationally representative China Health and Retirement Longitudinal Study (CHARLS) baseline survey, we describe the patterns of current living arrangements of the Chinese elderly and investigate their determinants and correlation with intergenerational transfers. We find that roughly 41% of Chinese aged 60 and over live with an adult child; living with a male adult child being strongly preferred. However another 34% have an adult child living in the same immediate neighborhood and 14% in the same county; only 5% have an adult child with none of them living in the same county. At the same time, a large fraction of the elderly, 45% in our sample, live alone or with only a spouse. In general, women, those from western provinces, and those from rural areas are more likely to live with or close to their adult children than their corresponding counterparts, but different types of intergenerational transfers play a supplementary role in the unequal distribution of living arrangements. Among non-co-resident children, those living close by visit their parents more frequently and have more communications by other means. In contrast, children who live farther away are more likely to send financial and in-kind transfers and send larger amounts.     

Political economy of taxation in an overlapping-generations economy

This paper analyzes the effects of intergenerational conflict on capital and labor income tax rates, transfers, and government spending in a model of multidimensional policy choice. The different nature of tax liabilities for the young and the old can explain why the old receive large gross lump-sum transfers through social security, while the young receive little or none. A natural link also emerges between the size of the government as a provider of public goods and the magnitude of transfers that the same government will implement.     

Dynamic efficiency and intergenerational altruism

Can dynamic inefficiency that may occur in societies populated by non-altruistic agents be removed by introducing intergenerational altruism? Although the answer seems to be negative, this paper shows, by means of a simple example, that the presence of an arbitrarily low proportion of altruists can be sufficient to prevent a society from reaching a non-Pareto optimal equilibrium. Intergenerational transfers from the old to the young can therefore provide an alternative—to public debt, fiat money or money bubbles which transfer goods from the young to the old—solution to the dynamic efficiency problem.     

Population change and economic development in Indonesia

Standard demographic transition theory holds that transition takes place concurrently with socioeconomic development. Oshima has generalized that the pace of demographic transition in Indonesia has been slow and in keeping with standard theory. This article, however, challenges Oshima's contentions and points out that Indonesia has been able to attain a level of demographic transition with a lower level of economic development than that experienced by present-day developed countries during their transitions from high fertility and mortality to low fertility and mortality. Sections consider the theory of demographic transition, population and economic change in Indonesia, and the likely impact of demographic changes on the future of Indonesia's economy. The more rapid demographic transition experienced in Indonesia may be used to stimulate even faster economic progress in the country.     

Optimal accumulation in an endogenous growth setting with human capital

This paper considers a three-overlapping-generations model of endogenous growth wherein human capital is the engine of growth. It first contrasts the laissez-faire and the optimal solutions. Three possible accumulation regimes are distinguished. Then it discusses a standard set of tax-transfer instruments that allow for decentralization of the social optimum. Within the limits of our model, the rationale for the standard pattern of intergenerational transfers (the working-aged financing the education of the young and the pension of the old) is seriously questioned. On pure efficiency grounds, the case for generous public pensions is rather weak.     

Capital Taxation and External Accounts in a Small Growing Economy

The effects of capital taxation on external accounts depend on how government allocates the tax revenue. With government debt being endogenous, an increase in either the residential or territorial capital tax rate may decrease net foreign asset holdings. With intergenerational transfers being endogenous, an increase in either the residential or territorial capital tax rate may increase net foreign asset holdings. With government spending being endogenous, an increase in the residential capital tax rate may either deteriorate or have no effect on the external accounts.     

Agricultural Productivity Growth and Escape from the Malthusian Trap

Industrialization allowed the industrialized world of today to escape from the Malthusian regime characterized by low economic and population growth and to enter the post-Malthusian regime of high economic and population growth. To explain the transition between these regimes, we construct a growth model with two consumption goods (an agricultural and a manufacturing good), endogenous fertility, and endogenous technological progress in the manufacturing sector. We show that with an exogenous increase in the growth of agricultural productivity our model is able to replicate stylized facts of the British industrial revolution. The paper concludes by illustrating that our proposed model framework can be extended to include the demographic transition, i.e., a regime in which economic growth is associated with falling fertility.     

Accounting for Fertility Decline During the Transition to Growth

In every developed country, the economic transition from pre-industrial stagnation to modern growth was accompanied by a demographic transition from high to low fertility. Even though the overall pattern is repeated, there are large cross-country variations in the timing and speed of the demographic transition. What accounts for falling fertility during the transition to growth? To answer this question, this paper develops a unified growth model that delivers a transition from stagnation to growth, accompanied by declining fertility. The model is used to determine whether government policies that affect the opportunity cost of education can account for cross-country variations in fertility decline. Among the policies considered, education subsidies are found to have only minor effects, while accounting for child labor regulation is crucial. Apart from influencing fertility, the policies also determine the evolution of the income distribution in the course of development.     

Are Family Transfers Crowded Out by Public Transfers?

We give an account of an overlapping–generations experiment with multiple families in which voluntary transfers can take the form of support to the elderly or grants to children. Support to the old is a purely intergenerational (intra–family) transfer, whereas grants to children also involve an element of intra–generational (inter–family) redistribution through a compulsory pension system. Our data show that higher compulsory inter–family transfers lead subjects to place relatively more emphasis on support instead of grants: grants are crowded out, but support is not significantly affected. The efficiency of voluntary transfers increases, however. Furthermore, if subjects give transfers, they do not use tokens of direct reciprocity; evidence of indirect reciprocity in transfer behavior can only be obtained for the case where compulsory transfers are high.
JEL classification : C 91; H 55     

Inequality in National Inter-Generational Transfers: Evidence from Colombia

Public transfers are designed with the idea of reducing poverty and inequality among specific population groups. The National Transfers Account methodology suggests the use of household head education (HHE) as a poverty proxy in the construction of profiles by socio-economic status. Considering the higher levels of inequality in developing countries, we construct and check inequality and intergenerational transfers using an alternative measure based on variables not endogenous to the underlying idea of intergenerational transfers: a Multidimensional Quality of Life Index (MQLI). We apply the methodology to a developing country, Colombia, and show that inequality and disparities in intergenerational transfers are best understood when using the MQLI.     

Investments into education—Doing as the parents did

Empirical evidence suggests that parents with higher levels of education generally attach a higher importance to the education of their children. This implies an intergenerational chain transmitting the attitude towards the formation of human capital from one generation to the next. We incorporate this intergenerational chain into an OLG-model with endogenous human capital formation. In absence of any state intervention such an economy might be characterized by multiple steady states with low or high human capital levels. There are also steady states where the population is permanently divided into different groups with differing human capital and welfare levels. Compulsory schooling is needed to overcome steady states with low human capital and welfare levels. Tax financed education subsidies can lead to further pareto-improvements.     

Fertility choice under child mortality and social norms

In most demographic transitions, declines in child mortality precede declines in net fertility rates. Variants of the Barro-Becker model of fertility fail to deliver this link. A simple extension, the inclusion of social norms regarding fertility, generates the desired effect.