BEGOÑA EGUÍA
Universidad del País Vasco

In this paper I analyze the effects that a fall in the birth rate and an increased life expectancy exert on a pay-as-you-go pension system. The consequences of delaying the legal retirement age are also considered. For that purpose I build an overlapping generations, life-cycle growth model that I solve numerically. A key feature of the model is the demographic process that endogenously originates the growth rate and the age distribution of the population as a result of the agse distributions of birth and survival rates. Four main results are obtained: first, given contribution rates, social security benefits must decrease when birth and mortality rates fall. Second, and for the same shocks, to guarantee the social benefits requires increasing contribution rates. Third, in both cases, the effects of postponing retirement age turn out to be the opposite. Fourth, these conclusions prove to be robust to alternative population structures.

Keywords: Social Security, demographic structure, induced retirement.