In this paper, we study a general equilibrium model with overlapping generations, endogenous fertility and public pensions. By assuming Cobb–Douglas technology and logarithmic preferences, we show that the introduction of a fertility-related component in the pay-as-you-go pension scheme may destabilise the long-term equilibrium and cause endogenous fluctuations when individuals have static expectations. The possibility of cyclical instability increases (resp. reduces) when both the subjective discount factor and relative weight of individual fertility in pay-as-you-go pensions (resp. the parents’ taste for children) increase(s). Interestingly, when public pensions are contingent on the individual number of children, the financing of small-sized benefits may cause the occurrence of a flip bifurcation, two-period cycles and cycles of a higher order. In addition, we show through numerical simulations that these results hold in a more general setting with a constant inter-temporal elasticity of substitution utility function and a constant elasticity of substitution production function. Our findings identify a possible novel factor responsible for persistent deterministic fluctuations in a context of overlapping generations, while also representing a policy warning regarding the destabilising effects of fertility-related pension reforms, which are currently high in both the theoretical debate and the political agendas of several developed countries.

Fertility-related pensions and cyclical instability

Luciano Fanti;Luca Gori
2013

Abstract

In this paper, we study a general equilibrium model with overlapping generations, endogenous fertility and public pensions. By assuming Cobb–Douglas technology and logarithmic preferences, we show that the introduction of a fertility-related component in the pay-as-you-go pension scheme may destabilise the long-term equilibrium and cause endogenous fluctuations when individuals have static expectations. The possibility of cyclical instability increases (resp. reduces) when both the subjective discount factor and relative weight of individual fertility in pay-as-you-go pensions (resp. the parents’ taste for children) increase(s). Interestingly, when public pensions are contingent on the individual number of children, the financing of small-sized benefits may cause the occurrence of a flip bifurcation, two-period cycles and cycles of a higher order. In addition, we show through numerical simulations that these results hold in a more general setting with a constant inter-temporal elasticity of substitution utility function and a constant elasticity of substitution production function. Our findings identify a possible novel factor responsible for persistent deterministic fluctuations in a context of overlapping generations, while also representing a policy warning regarding the destabilising effects of fertility-related pension reforms, which are currently high in both the theoretical debate and the political agendas of several developed countries.
Fanti, Luciano; Gori, Luca
File in questo prodotto:
File Dimensione Formato  
Fanti and Gori 2013 JOPE.pdf

solo utenti autorizzati

Tipologia: Versione finale editoriale
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 644.69 kB
Formato Adobe PDF
644.69 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
JOPE_Post_Print.pdf

embargo fino al 31/07/2014

Tipologia: Documento in Post-print
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 878.24 kB
Formato Adobe PDF
878.24 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11568/282742
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 16
  • ???jsp.display-item.citation.isi??? 16
social impact