Investing for the Old Age : Pensions, Children and Savings

In the last century, most countries have experienced both an increase in pension spending and a decline in fertility. We argue that the interplay of pension generosity and development of capital markets is crucial to understand fertility decisions. Since children have traditionally represented for parents a form of retirement saving, particularly in economies with limited or nonexistent capital markets, an exogenous increase of pension spending provides a saving technology alternative to children, thus relaxing financial (saving) constraints and reducing fertility. We build a simple two-period OLG model to show that an increase in pensions is associated with a larger decrease in fertility in countries in which individuals have less access to financial markets. Cross-country regression analysis supports our result: an interaction between various measures of pension generosity and a proxy for the development of financial markets consistently enters the regressions positively and significantly, suggesting that in economies with limited financial markets, children represent a (if not the only) way for parents to save for old age, and that increases in pensions amount effectively to relaxing these constraints.

Bibliographic Details

Main Authors:	Galasso, Vincenzo, Gatti, Roberta, Profeta, Paola
Format:	Journal Article biblioteca
Language:	EN
Published:	2009
Subjects:	Personal Finance D140, Macroeconomics: Consumption, Saving, Wealth E210, Social Security and Public Pensions H550, Demographic Trends and Forecasts, General Migration J110, Fertility, Family Planning, Child Care, INTERDISCIPLINARY RESEARCH AREAS :: Children, Youth J130,
Online Access:	http://hdl.handle.net/10986/5760
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