Working Paper: CEPR ID: DP2023
Authors: Hanswerner Sinn
Abstract: It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for 'rotten kids' who are unwilling to pay their parents a pension. It is true that the system has a moral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale, this effect will not be strong enough to prevent a welfare improvement. If, on the other hand, the scale of the system is so large that parents bequeath some of their pensions to their children, it is overdrawn and creates unnecessarily strong disincentives for human capital investment.
Keywords: social security; public pensions; migration; fertility
JEL Codes: H55; J13; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PAYGO pension system (H55) | insurance against childlessness (G52) |
| PAYGO pension system (H55) | support from children to parents (J13) |
| PAYGO pension system (H55) | fertility choices (J13) |
| PAYGO pension system (H55) | investment in human capital (J24) |
| investment in human capital (J24) | long-term welfare losses (D69) |