TY - JOUR
T1 - Education subsidies, social security and growth: The implications of a demographic shock
AU - Docquier, Frederic
AU - Michel, Philippe
PY - 1999
Y1 - 1999
N2 - We develop a three-period overlapping-generations model in which individual decisions about education are the engine of growth. In this setting, we investigate the normative role of education subsidies and old age pensions. Calibrating this model on empirical data, it is shown that the case for positive pension benefits is rather weak on the optimal path. An important part of education subsidies should be financed by lump-sum taxes on retirees. We also examine how these transfers should be adjusted in the presence of a baby boom-baby bust demographic shock. It turns out that an appropriate policy could be to increase education when the baby-boom generation is at work. Labor productivity will then be higher when aging peaks so that the pension bill can be financed without reducing welfare for the baby-bust generations.
AB - We develop a three-period overlapping-generations model in which individual decisions about education are the engine of growth. In this setting, we investigate the normative role of education subsidies and old age pensions. Calibrating this model on empirical data, it is shown that the case for positive pension benefits is rather weak on the optimal path. An important part of education subsidies should be financed by lump-sum taxes on retirees. We also examine how these transfers should be adjusted in the presence of a baby boom-baby bust demographic shock. It turns out that an appropriate policy could be to increase education when the baby-boom generation is at work. Labor productivity will then be higher when aging peaks so that the pension bill can be financed without reducing welfare for the baby-bust generations.
KW - Aging population
KW - Endogenous growth
KW - Intergenerational transfers
UR - http://www.mendeley.com/research/education-subsidies-social-security-growth-implications-demographic-shock
U2 - 10.1111/1467-9442.00164
DO - 10.1111/1467-9442.00164
M3 - Article
SN - 0347-0520
VL - 101
SP - 425
EP - 440
JO - Scandinavian Journal of Economics
JF - Scandinavian Journal of Economics
IS - 3
ER -