Growing old and staying young: population policy in an ageing closed economy

This paper analyses the relation between public pensions, fertility and child care in a closed-economy overlapping generations model with endogenous fertility. It is shown that raising a child involves two social externalities and that it is optimal to introduce child allowances if the government redistributes income from the young to the old. The optimal child allowance rises when longevity increases. If the costs of raising children depend positively on the wage, a third externality arises and the returns to savings should be taxed.