The old age security hypothesis and optimal population growth
Bental, B.
Journal of Population Economics 1(4): 285-301
1989
ISSN/ISBN: 0933-1433 PMID: 12342694 DOI: 10.1007/bf00166069Document Number: 367218
The application of the Samuelson-Diamond overlapping generations framework to the old age security hypothesis indicates that government intervention schemes can influence the relationship between population growth and capital accumulation. The most direct means of optimizing population growth is through taxes or subsidies that relate to the intergenerational transfer of wealth. A pay-as-you-go social security scheme, in which payment is predicated on the number of children the receiver has and is financed by taxes levied on the working population, emerges as the most likely intervention to produce the optimal steady state equilibrium. This system is able to correct any distortions the private sector may build into it. In contrast, a child support system, in which the government subsidizes or taxes workers according to their family size, can guarantee the optimal capital:labor ratio but not the optimal population growth rate. Thus, if the government seeks to decrease the population growth rate, the appropriate intervention is to levy a lump-sum social-security tax on workers and transfer the revenues to the old; the direction should be reversed if the goal is to increase population growth. Another alternative, a lump sum social security system, can guarantee optimal population growth but not a desirable capital:labor ratio. Finally, the introduction of money as a valued commodity into an economy with a high capital:labor ratio will also serve to decrease the population growth rate and solve the intergenerational transfer problem through the private sector without any need for government intervention.
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