Social Security, Demographic Trends, and Economic Growth:
Theory and Evidence from the International Experience
Abstract:
The worldwide problem with pay-as-you-go (PAYG) social security systems isn't just financial. This study indicates that these systems may have exerted adverse effects on key demographic factors, private savings, and long-term growth rates. Through a comprehensive endogenous-growth model where human capital is the engine of growth, family choices affect human capital formation, and family formation itself is a choice variable, we show that social security taxes and benefits can create adverse incentive effects on family formation and subsequent household choices, and that these effects cannot be fully neutralized by counteracting intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years (1960-92). We find that PAYG tax measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries.
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Theory and Evidence from the International Experience
Abstract:
The worldwide problem with pay-as-you-go (PAYG) social security systems isn't just financial. This study indicates that these systems may have exerted adverse effects on key demographic factors, private savings, and long-term growth rates. Through a comprehensive endogenous-growth model where human capital is the engine of growth, family choices affect human capital formation, and family formation itself is a choice variable, we show that social security taxes and benefits can create adverse incentive effects on family formation and subsequent household choices, and that these effects cannot be fully neutralized by counteracting intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years (1960-92). We find that PAYG tax measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries.
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Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis (with Yong Yin)
Abstract:
Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in agespecific life expectancies across individuals and over time. We address these issues via calibrated simulations of a dynamic, life-cycle model of life protection in which life's end is a stochastic event, age-specific mortality risks are endogenous variables, and spending on life protection is set jointly with related insurance options: life insurance as well as annuities. A unique feature of our model is that it links age-specific mortality risks and implicit private values-of-life-saving (VLS) as "dual variables", and estimates them jointly. It also offers new insights about the concept and measurement of VLS. Life protection is estimated to have a non-negligible impact on age-specific life expectancies. It can account for significant portions of observed inequalities in life expectancies across population groups and over time, as well as for a wide range of empirical estimates of VLS produced via the conventional "willingness to pay" approach.
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Abstract:
Little attempt has been made so far to quantify the extent to which individual willingness to spend on life protection may account for the observed trends and diversities in agespecific life expectancies across individuals and over time. We address these issues via calibrated simulations of a dynamic, life-cycle model of life protection in which life's end is a stochastic event, age-specific mortality risks are endogenous variables, and spending on life protection is set jointly with related insurance options: life insurance as well as annuities. A unique feature of our model is that it links age-specific mortality risks and implicit private values-of-life-saving (VLS) as "dual variables", and estimates them jointly. It also offers new insights about the concept and measurement of VLS. Life protection is estimated to have a non-negligible impact on age-specific life expectancies. It can account for significant portions of observed inequalities in life expectancies across population groups and over time, as well as for a wide range of empirical estimates of VLS produced via the conventional "willingness to pay" approach.
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The Dynamics of Income, Schooling, and Fertility Distributions Over the Course of Economic Development: A Human Capital Perspective (with Jinyoung Kim)
Abstract:
We develop a dynamic model of fertility and income distribution in which both are linked to the formation and distribution of human capital among families. Our model offers a dynamic version of Becker's (1967) model of income distribution within an endogenous growth framework. We view the population as consisting of heterogeneous families, which are subject to intra-family and inter-family interactions. Families determine fertility, human capital formation in children, and savings. We thus link income and fertility distributions over an entire development path, extending from a low-income, stagnant state to a self-sustaining growth regime. In this context, we also reexamine the "Kuznets hypothesis" concerning the relation between income inequality and income growth over a transitional development period. The paper offers new insights and supporting empirical evidence concerning the time-paths of distributional measures of fertility, educational attainments, and three income-related measures: family-income inequality, income-group inequality, and the Gini coefficient.
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Abstract:
We develop a dynamic model of fertility and income distribution in which both are linked to the formation and distribution of human capital among families. Our model offers a dynamic version of Becker's (1967) model of income distribution within an endogenous growth framework. We view the population as consisting of heterogeneous families, which are subject to intra-family and inter-family interactions. Families determine fertility, human capital formation in children, and savings. We thus link income and fertility distributions over an entire development path, extending from a low-income, stagnant state to a self-sustaining growth regime. In this context, we also reexamine the "Kuznets hypothesis" concerning the relation between income inequality and income growth over a transitional development period. The paper offers new insights and supporting empirical evidence concerning the time-paths of distributional measures of fertility, educational attainments, and three income-related measures: family-income inequality, income-group inequality, and the Gini coefficient.
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