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On the Role of Pension Systems in Economic Development and Demographic Transition

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Abstract
In this paper we examine whether different pension systems affect the set of initial human capital conditions capturing an economy in a low steady state equilibrium income. To analyze this problem, we employ a three period overlapping generations model where fertility and investments into the children's education are chosen endogenously. We show that education investments are higher and start at lower income levels for a pay-as-you-go pension system economy compared to an informal, fertility related one. The income threshold needed to escape the "poverty trap" is therefore lower if a pay-as-you-go pension system is employed. Moreover, unless the economy is caught in the low income steady state, a pay-as-you-go pension system supports higher equilibrium income. We further highlight that pension systems influence the timing of demographic transition through their different valuation of fertility, contributing to the explanation for observed differences between developed and developing countries.

Suggested Citation

  • Johannes Holler, 2008. "On the Role of Pension Systems in Economic Development and Demographic Transition," Vienna Economics Papers vie0812, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0812
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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