Education Subsidies, Social Security and Growth: The Implications of a Demographic Shock |
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Authors: | Frederic Docquier,& Philippe Michel |
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Affiliation: | University of Lille II, F-59024 Lille, France and Ministere de la Region Wallonne, B-5100 Jambes, Belgium,;GREQAM, University of Aix-Marseille II, F-93002 Marseille, France |
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Abstract: | We develop a three-period overlapping-generations model in which individual decisions about education are the engine of growth. In this setting, we investigate the normative role of education subsidies and old age pensions. Calibrating this model on empirical data, it is shown that the case for positive pension benefits is rather weak on the optimal path. An important part of education subsidies should be financed by lump-sum taxes on retirees. We also examine how these transfers should be adjusted in the presence of a baby boom-baby bust demographic shock. It turns out that an appropriate policy could be to increase education when the baby-boom generation is at work. Labor productivity will then be higher when aging peaks so that the pension bill can be financed without reducing welfare for the baby-bust generations. JEL classification : O 41; J 24; E 62 |
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Keywords: | Endogenous growth intergenerational transfers aging population |
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