Pensions and aging

Helmuth Cremer, Pierre Pestieau
2009 International Tax and Public Finance   unpublished
The 64 th Congress of the International Institute of Public Finance focused on the theme "pensions and aging." This emphasis is also reflected in the selection presented here. The first two papers of this issue are based on two of the keynote lectures, namely "Pensions and fertility: in search of a link," by Firouz Gahvari, and "Develop-ments in pension reform: the case of Dutch stand-alone collective pension schemes," by Lans Bovenberg. They deal with two key topics. The interaction between
more » ... unded pensions and fertility, which is the subject of Firouz Gahvari's paper, is a major concern in the debate. This is particularly so in many OECD countries, which experience unsustainable pension systems along with fertility rates well below the replacement level. Lans Bovenberg considers the financial viability of pensions systems with the need to find a compromise between defined-benefit and defined-contribution schemes; this is also a hot topic for economists and non-economists alike. Firouz Gahvari starts by noting that fertility choice has both a positive and a negative externality. He argues that these can be internalized through a child allowance (or tax) or through a linkage between pension benefits and the number of children. In other words, this externality may justify pension benefits (or contributions) that are related to fertility. As he points out, this prescription rests crucially on the assumption that no parents are better than others in raising their children (there is no adverse selection problem) and that fertility can be perfectly controlled (there is no uncertainty and no moral hazard). When either of these two assumptions is violated, the case for such policy recommendations is greatly weakened.