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ENDOGENOUS DEMOGRAPHIC CHANGE, RETIREMENT, AND SOCIAL SECURITY

Published online by Cambridge University Press:  10 May 2019

Giam Pietro Cipriani  and
Tamara Fioroni
Giam Pietro Cipriani
Affiliation:
University of Verona and IZA
Tamara Fioroni*
Affiliation:
University of Verona
*
Address correspondence to: Tamara Fioroni, Department of Economics, University of Verona, Via Cantarane 24, 37129, Verona, Italy. e-mail: [email protected]. Phone: ++39 0458489.
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Abstract

In this paper, we analyze the effects of demographic change on a pay-as-you-go (PAYG) pension system, financed with a defined contribution scheme. In particular, we examine the relationship between retirement, fertility, and pensions in a three-period overlapping generations model. We focus on both the case of mandatory retirement and the case where the retirement age is freely chosen. In the case of mandatory retirement, increasing longevity has an unambiguously negative impact on fertility and pension payouts and a positive effect on the level of physical capital in the steady state. On the other hand, when agents choose the time of retirement, an increase in life expectancy positively affects physical capital only when the tax rate is sufficiently low and can have a positive impact on pension benefits, because agents may find it optimal to retire later and to decrease fertility less. Finally, the effects of the social security tax on capital per worker are negative with mandatory retirement; however, they could be positive in the optimal retirement case.

Keywords

PAYG PensionsEndogenous FertilityAgingRetirement
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 3 , April 2021 , pp. 609 - 631
Copyright
© Cambridge University Press 2019

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Footnotes

We thank two anonymous referees and the Editor for their helpful comments. We also thank the seminar participants at the “10th International Conference on Nonlinear Economic Dynamics” (Pisa, September 2017) and the “41st Annual Meeting of the Association for Mathematics Applied to Social and Economic Sciences” (Cagliari, September 2017) for helpful comments and discussions.

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