PUBLIC PENSIONS WITH ENDOGENOUS FERTILITY - COMMENT ON NISHIMURA AND ZHANG

The analysis in Nishimura and Zhang (Journal of Public Economics, 1992, 48, 239-258) (N-Z) relies on an unstated assumption that, either individuals are able to coordinate their fertility decisions, or individual pensions are conditional on individual fertility. The present note criticizes this assumption, and shows what happens if it is dropped. Introducing a social security system with a rate of tax equal to the socially optimal transfer from the young to the old will have no effect on fertility, but will raise lifetime consumption and welfare (rather than reduce fertility and raise transfers as N-Z predict). The implications of reversing the direction of altruism (from parents to children, rather than children to parents as in N-Z), or doing away with altruism altogether, are also discussed.