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Robert Fenge

18 September 2014
Fertility has long been declining in industrialised countries and the existence of public pension systems is considered as one of the causes. This paper provides detailed evidence based on historical data on the mechanism by which a public pension system depresses fertility. Our theoretical framework highlights that the effect of a public pension system on fertility works via the impact of contributions in such a system on disposable income as well as via the impact on future disposable income that is related to the internal rate of return of the pension system. Drawing on a unique historical data set which allows us to measure these variables at a jurisdictional level for a time when comprehensive social security was introduced, we estimate the effects predicted by the model. We find that beyond the traditional determinants of the first demographic transition, a lower internal rate of return of the pension system is associated with a higher birth rate. This result is robust to including the traditional determinants of the first demographic transition as controls as well as to other policy changes at the time.
JEL Code
C21 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Cross-Sectional Models, Spatial Models, Treatment Effect Models, Quantile Regressions
H31 : Public Economics→Fiscal Policies and Behavior of Economic Agents→Household
H53 : Public Economics→National Government Expenditures and Related Policies→Government Expenditures and Welfare Programs
H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
J13 : Labor and Demographic Economics→Demographic Economics→Fertility, Family Planning, Child Care, Children, Youth
J18 : Labor and Demographic Economics→Demographic Economics→Public Policy
J26 : Labor and Demographic Economics→Demand and Supply of Labor→Retirement, Retirement Policies
N33 : Economic History→Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy→Europe: Pre-1913