Fertility-related pensions and cyclical instability

Speaker:  Luca Gori - Universita' di Pisa
  Monday, March 15, 2010 at 12:30 PM Biblioteca DSE - Palazzina 32, ex Caserma Passalacqua

 

Using an overlapping generations Cobb-Douglas economy with endogenous fertility,

we show that the introduction of a fertility related component in unfunded public pensions may

destabilise the economy and cause chaotic fluctuations when individuals are short-sighted. In

particular, the risk of cyclical instability increases with both the individual degree of thriftiness and

the relative weight of individual fertility in the pension system, while being reduced by a higher

preference for having children. It is illustrated for realistic economies that if PAYG pensions are

linked to individual fertility, then even a small-sized pension system brings the economy into the

unstable region with chaotic fluctuations. Our results identify a novel possible factor responsible for

the trigger of persistent deterministic cycles in an overlapping generations context, and also

represent a policy warning about the dramatic destabilising effects of fertility-related pension

reforms, which are currently high in the theoretical debate as well as in the political agenda in

several developed countries.

Documents
Title Format  (Language, Size, Publication date)
paper  pdfpdf (it, 196 KB, 02/03/10)

Programme Director
Angelo Zago

Publication date
February 5, 2010

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