Why Child Allowances Fail to Solve the Pension Problem of Aging Societies

Abstract

The aim of the paper is to investigate how child allowances affect population growth and pension benefits of pay-as-you-go (PAYG) pension systems in small open and closed economies. We apply an overlapping-generations (OLG) model in its canonical form, where we consider endogenous fertility and growth generated by human capital accumulation. From the analysis, we conclude that in a small open economy, child allowances increase the number of children, yet decrease pension benefits over the long run. If we consider a closed economy, the effect of child allowances on fertility is ambiguous and remains negative on pension benefits over the long run.

Long-term economic implications of Demeny voting: A theoretical analysis

“…The recognition that the existence of a compulsory pay-as-you-go pension system generates a positive externality, due to the fact that the social benefit of an additional child (who-as a future workerwill pay contributions to the pension system) exceeds the private benefit enjoyed by the child's parents (Cigno, 1993), has given rise to a strand of literature exploring whether child allowances can increase the fertility rate, make the pension system sustainable and improve the social welfare (see, e.g., Groezen et al, 2003;Groezen and Meijdam, 2008;Yasuoka and Goto, 2011;Yasuoka, 2013;Schoonbroodt and Tertilt, 2014;Stauvermann and Wernitz, 2019;Cipriani and Pascucci, 2020).…”

Long-Term Economic Implications of Demeny Voting: A Theoretical Analysis

“…The recognition that the existence of a compulsory pay-as-you-go pension system generates a positive externality, due to the fact that the social benefit of an additional child (who-as a future workerwill pay contributions to the pension system) exceeds the private benefit enjoyed by the child's parents (Cigno, 1993), has given rise to a strand of literature exploring whether child allowances can increase the fertility rate, make the pension system sustainable and improve the social welfare (see, e.g., Groezen et al, 2003;Groezen and Meijdam, 2008;Yasuoka and Goto, 2011;Yasuoka, 2013;Schoonbroodt and Tertilt, 2014;Stauvermann and Wernitz, 2019;Cipriani and Pascucci, 2020).…”

The Impact of the Two-Child Policy on the Pension Shortfall in China: A Case Study of Anhui Province

“…The German government offers for example the following benefits: one parent can stay at home for 13 months, while receiving 70% of the previous salary; tuition fees are not required from universities and schools; the monthly child allowance is $250 for the first and second child, $260 for the third, and $290 for each additional child (In the case when someone has 4 children, the total child allowance is 250 + 250 + 260 + 290 = $1050 per month, or above $12,000 a year); additionally the pension benefits of females increase with an increasing number of children. Stauvermann and Wernitz (2019) propose that after the child allowance increases the number of children, it is necessary to prevent the occurrence of a decrease in the income of children due to the lower education level per child, which could have an adverse effect on the future pay-as-you-go pension system [5].…”