Social Security Reform In A Dynastic Life-cycle Model With Endogenous Fertility
This paper studies the effects of a fully funded social security reform with endogenous fertility in a detailed, general equilibrium life-cycle model with dynasties whose members differ in skills and life uncertainty. The authors find that as high skill households tend to save relatively more in assets than in children, models with exogenous fertility underestimate the aggregate capital stock in the PAYG steady state. These models also predict that the capital stock increases after the fully funded reform. However, because the high skill households respond to the reform by having more children and investing less in assets and intergenerational transfers, the average fertility increases and the aggregate capital stock falls.