Can Fertility be Increased With a Pension Reform?

Europe’s pension systems face serious challenges due to increasing life expectancy and decreasing fertility. One cause of the latter is the pension system itself: as parents are no longer dependent of their children in their older days, they are not inclined to have so many children. This paper presents the effects of the pension system’s introduction in an overlapping generations framework (calibrated on the basis of the Hungarian data) with heterogeneous agents, reasoning fertility’s general decrease. The paper also analyzes a possible solution, a new pension scheme, where the pension depends not only on the previous contribution which punishes child bearing but also on the number of children that a pensioner has. As a result we receive that such a pension system could increase fertility, although it decreases output and consumption per capita and the welfare of the society but increases the total output and consumption due to the higher fertility. © 2014, Springer Science+Business Media New York.