A Savings Subsidization System in a Model of Endogenous Fertility and Endogenous Growth

Abstract

The Phenomenon of population aging is now an established demographic characteristic of many economies. Public policy makers are thus increasingly concerned about the economic consequences of large numbers of retired citizens. Economists working in the endogenous growth theory tradition have sought to model the relationship between public pensions, financed on a 'Pay-As-You-Go (hereafter PAYG) basis, and the growth in per capita incomes. It appears that 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 (see, for instance, King and Ferguson (1993)). The underlying transmission mechanism appears to be a crowding out effect in private capital markets contingent upon the introduction of public pension systems.