Children and Pensions

List of Figures ix List of Tables xi Series Foreword xiii Acknowledgments xv Introduction xvii 1 Demography 1 1.1 Fertility 1 1.2 Population Projections 4 1.2.1 Projected Age Structures 4 1.2.2 Old-Age and Total Dependency Ratios 7 1.3 Implications for Public Expenditure 9 2 Public Support for the Old 15 2.1 Public Pension Schemes 15 2.2 Simple Pension Algebra 19 2.3 Public Pension Schemes in Selected Countries 23 2.3.1 US Social Security 24 2.3.2 UK National Insurance 25 2.3.3 The German Gesetzliche Rentenversicherung 26 2.3.4 The French Regime General 27 2.3.5 The Italian Fondo Pensioni Lavoratori Dipendenti 28 2.3.6 The Swedish Public Pension Scheme 30 2.3.7 The Japanese Public Pension Scheme 31 2.4 Aging and the Tax Implied in Public Pensions 32 3 Public Support for Families and Children 41 3.1 Cash Benefits 42 3.1.1 Monetary Benefits for Families with Children 42 3.1.2 Parents with Different Numbers of Children 46 3.1.3 Parents with Different Earnings 47 3.2 Benefits In-Kind 51 3.2.1 Child Care 51 3.2.2 Schooling 53 3.2.3 Health 55 4 Child-Related Elements in Public Pension Schemes 57 4.1 Rules Applied in Selected Countries 57 4.1.1 United States 59 4.1.2 United Kingdom 60 4.1.3 Germany 60 4.1.4 France 61 4.1.5 Italy 62 4.1.6 Sweden 64 4.1.7 Japan 65 4.2 A Synopsis of Measures 65 4.2.1 Women's Wage Profiles and Stylized Biographies 66 4.2.2 Baseline Case 67 4.2.3 Alternative Patterns of Labor Force Participation 72 4.2.4 Mothers with Different Earning Abilities 75 4.2.5 Mothers with Different Numbers of Children 77 5 Life-cycle Adjustments and Intergenerational Transfers: Theory 81 5.1 A Constitutional Theory of the Family 83 5.1.1 No Assets or Credit Markets 84 5.1.2 Assets and Credit Markets 85 5.1.3 Self-enforcing Family Constitutions 90 5.2 Public Intervention 93 5.2.1 Pension Policy 93 5.2.2 Child Benefits 103 5.2.3 Male and Female Wage Rates 105 5.3 Uncertainty, Personal Services, and Altruism 108 6 Life-cycle Adjustments and Intergenerational Transfers: Evidence 111 6.1 Micro-data Evidence 111 6.1.1 Intrafamily Transfers 112 6.1.2 Effect of Income on Transfer Behavior 114 6.1.3 Effect of Credit-Rationing on Transfer Behavior 116 6.2 Macro-data Evidence 120 6.2.1 Aggregate Effects of Pensions and Child Benefits Policies 122 6.2.2 A VAR Model for Germany 123 7 Policy: What Ought to Be Done? 127 7.1 Optimal Policy in a Simple Framework 129 7.1.1 Social Optima 130 7.1.2 Laissez-faire Equilibria 132 7.1.3 First-best Pensions and Child Benefits 133 7.2 Human Capital, Uncertainty, and Moral Hazard 136 7.3 Policy Optimization as a Principal-Agent Problem 137 7.3.1 Parents as Government Agents 138 7.3.2 Government as Principal 140 7.4 Pensions and Child Benefits in the Presence of Uncertainty and Asymmetric Information 144 8 Policy: What Can Be Done? 147 8.1 An Early Summing-up, and Some Policy Options 149 8.2 Reducing Pension Coverage and Raising Child Benefits 152 8.2.1 Fertility Effects 155 8.2.2 Saving Effects 157 8.3 Reforming the System 159 8.3.1 Linking Individual Pension Entitlements to Individual Fertility 159 8.3.2 Linking Individual Pension Entitlements to Own Children's Earning Capabilities 162 Conclusion 165 Notes 169 References 187 Index 197