PUBLIC PENSIONS, FAMILY ALLOWANCES AND ENDOGENOUS DEMOGRAPHIC-CHANGE

In addition to an old-age insurance system which redistributes income from the young to the old, family allowances build a further redistrib utive system which typically favors younger and burdens older generati ons. Family allowances have two main tasks: first, child allowances of fer an incentive for child-bearing which influences fertility in an ec onomy. Second, subsidies which ease the financial burden of a child's education guarantee a higher average level of productive skills and th erefore enhance net domestic product. If individual demand for having and educating children leads to an impact on the economic system as a whole, we have external effects. In such a case, corrective taxation ( Pigouvian tax) should be considered.