Growing old and staying young: population policy in an ageing closed economy

This paper analyses the relation between public pensions, fertility and child care in a closed economy OLG-model with endogenous fertility. It is shown that raising a child involves two social externalities, and that it is optimal to introduce child allowances if the government redistributes income from the young to the old. The optimal child allowance rises when longevity increases. If the cost of raising children depend positively on the wage, a third externality arises and the returns to savings should be taxed.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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