تعامل بین آموزش و تامین اجتماعی

This paper uses an overlapping generations model with endogenous fertility choices to analyze the quantitative costs and benefits of subsidizing higher education, paying particular attention to the interaction between such policy and the sustainability of the social security system. The paper focuses on the demographic change as the mechanism that link both policies. It is found that an increase in education subsidies changes the educational composition of the population and lowers average fertility. Lower average fertility and higher life expectancy of educated individuals translates into changes in the age structure of the population that requires an increase in the social security tax rate in order to balance the pension budget. Such process reduces the welfare benefits of this educational policy since the rise in social security taxes lowers the after-tax lifetime earnings of almost all individuals born in the period of the policy reform and over.

Public expenditure on social security pensions is expected to grow rapidly between 1998 and the end of the first quarter of the next century. Demographic trends imply a substantial increase in the number of retired people as the baby-boom generation reaches retirement age. This fact has motivated an increasing concern about the sustainability of the pension systems in developed countries. In this sense, the recent research effort on social security has mainly concentrated on the optimality of the current pay-as-you-go pension system (e.g., Imrohoroglu et al., 1995) and the design of a feasible reform to a funded system (e.g., Huang et al., 1997). These studies have a feature that is crucial for the type of questions I want to address in this paper, namely they abstract from the interaction between the financial viability of the social security system and the way other public policies are designed. This is an important shortcoming since abstracting from this interaction may prevent governments from facing the real consequences of the implementation of a policy reform. The purpose of this paper is firstly to investigate the interaction between a policy aimed at subsidizing higher education and the sustainability of the social security system paying particular attention to the demographic change as the critical mechanism that relates both policies. And secondly, to analyze to what extent this interaction affects the quantitative evaluation of the costs and benefits of education subsidies. With some exceptions, the existing literature has studied the economic effect of both policies (public education and social security) separately. On the one hand, there are some studies that analyze the efficiency gains produced by the investment of public resources in education. The existence of borrowing constraints that prevent young agents from borrowing against future income (Fernandez and Rogerson, 1998) and the possible gains stemming from externalities in the accumulation of human capital (Docquier and Michel, 1999) are examples of this effort. Other studies have stressed the link between education and the optimal number of children, e.g., Barro and Becker (1989) and Becker et al. (1990). These frameworks could be potentially useful to qualitatively study the interaction between public education and social security. However, these are mostly overlapping generations models where agents live two periods and consequently they cannot incorporate great demographic detail. More recently,Heckman et al. (1999) use a large overlapping generations model with endogenous educational attainment to address the quantitative costs and benefits of tuition subsidies in a general equilibrium framework. This work is more close in spirit to mine, although in their work the demographic characteristics of individuals in terms of mortality risk and fertility are ignored. On the other hand, many recent studies have identified the aging process as the critical variable that limits the financial sustainability of the social security system in western countries (e.g., Franco and Munzi, 1996). The work of Auerbach and Kotlikoff (1987) provides a useful framework to quantify the effect of an aging process on the viability of a pay-as-you-go system. However, they assume that the aging process is exogenous to the model and in contrast to Heckman et al. (1999) agents cannot choose their education attainment. Finally, there are some studies that analyze the interaction between education and social security. Glomm and Kaganovich (2002) have studied the effects of public education on the distributional effects of human capital in an economy with social security. In Ehrlich and Lui (1998) children provide support to parents in old age, so that parents have an interest in the education of their children over and above any altruistic motives. Therefore, it is possible that social security weakens the link between a parent’s retirement income and the earnings of his own children (since part of the child’s earnings are taxed away to support all elderly persons), thus leading parents to devote fewer resources to educating their children. In a related work Kaganovich and Zilcha (1999) consider the interaction between public education and the social security. They study a model where altruistically-motivated parents invest in the human capital of their children. When parents retire, the labor income of their children’s generation is taxed to finance their social security benefits. This link between the human capital of children and the parents’ retirement benefits is disregarded in each parental educational decision, but it is captured by the government’s social optimization. They find that for some parameter values the optimal policy entails not only subsidizing education but also to tax labor income to finance retirement benefits. This is the case when agents value very much consumption when old. In this case agents save relatively more, pushing down the equilibrium interest rate. Hence, it is optimal to introduce a pay-as-you-go system because the resources invested in the social security system earn a rate of return which is greater than the equilibrium interest rate. Despite the usefulness of these studies, these are two-period overlapping generations models and consequently are not well suited to give a quantitative answer to the question at hand. In contrast, this paper presents a computable general equilibrium model with the following features. First, at each point in time there are six cohorts differentiated by education, since data shows that the fertility and mortality characteristics of individuals is linked to their educational attainment. Second, the decision whether or not to acquire education is endogenous. This decision is taken in the first period of adulthood.At the end of this period individuals decide how many children to have facing a trade-off between the next period’s marginal utility of an additional child (since children enter the utility function) and the cost of rising these children while they are at home. Since educated individuals earn higher wages, the existence of a fixed portion of time per child to be spent in child-caring activities means that the opportunity cost of children is higher for educated individuals and they end up having less children than unskilled individuals in equilibrium. Consequently, apart from any change in fertility decisions, any change in the educational composition of the population can potentially generate a demographic change through a pure compositional effect that changes average fertility. To perform the quantitative analysis the model economy is calibrated to match some features of the Spanish economy. The study of this economy is interesting because from 1980 to 1993 the percentage of GNP spent on higher education has more than doubled, allowing for a greater share of the population to enrol in university education. On the other hand, the Spanish population is aging very rapidly as compared with the rest of European countries mainly due to the fall in average fertility (see Table 1) and this process is raising concern about the financial viability of the social security system in the near future. These facts suggest that the Spanish economy provides an interesting case to study the interaction between the educational policy and the social security system. Notice that in the model economy the finances of the social security system are going to be affected by the change in the age structure of the population which depends on the equilibrium response of the enrolment in higher education to the increase in education subsidies. For this reason, in order to obtain reliable quantitative answers, a well specified general equilibrium framework is needed so as to allow agents to take into account the effect associated with the change in skill prices along the transitional dynamics between steady states. In this framework, the experiment performed in this paper is the following. The initial condition is a model economy characterized by a 0.27% of GNP spent in subsidizing higher education and an enrolment rate in college of around 21% in 1980. In order to obtain an initial asset distribution it is assumed that the economy is in a steady state. Consequently, the educational partition of older age groups is also 21%, and the initial age structure of the population is the one generated by that educational partition. The experiment considered is a policy reform aimed at increasing permanently the percentage of GNP spent on subsidizing higher education (financed with income taxes) from 0.27 to 0.82% in 1993 while adjusting the social security tax rate so as to keep the government budget constraint balanced in each period. Finally, we evaluate how the interaction between higher education subsidies and the implied dynamics of the social security tax rates affects the evaluation of the quantitative costs and benefits associated with the educational reform implemented. The results are the following. In the baseline experiment, it is found that more than doubling the percentage of GNP spent on higher education, with the corresponding increase in income taxes needed to finance it, increases the percentage of the young population that attends college from 20.66% in 1980 to 31.13% in 1995, 30.09% by 2010 and 30.69% in the new steady state. As the educational attainment of the working force improves in the initial periods of the transition, taxable labor earnings increase allowing for a decline in the social security tax rate needed to balance the pension budget from the initial value 29.91 to 27.37% in period 2. By period 3 of the transition, the better educated generation of individuals (born in period of the policy reform) start retiring. Since this generation is composed by a higher proportion of skilled individuals, the pension expenditure increases as skilled workers qualify for higher pensions and the social security tax rate has to be raised. In addition, since the demographic behavior of individuals is crucially affected by their educational attainment, as a greater proportion of the population attends college the average number of children per women falls from 2.7 to 2.4 by the third period of the transition and the average life expectancy increases. Both mechanisms drive up the old dependency ratio from 0.194 in 1980 up to 0.227 in the seventh period of the transition. The aging of the population and the rise of the social security effective replacement ratio, requires an increase in the tax rate needed to balance the pension budget from 29.91% in 1980 to more than 34% in some periods of the transition and 31.71% in the final steady state. In order to analyze the quantitative costs and benefits of the increase in education subsidies I follow Heckman et al. (1999) and report for each generation and each type of agent the present value of lifetime earnings and utility attained. The measure of earnings is reported in different scenarios which include: (1) the measure of earnings with the initial income tax, social security tax rate, and education subsidy, (2) the earnings when added the new income tax rates, (3) the earnings with the new income tax and the new social security tax rates, and (4) the earnings when added the new education subsidies to measure (3). Finally, it is reported the lifetime utility at birth for each generation and type of agent (5). Themain results are the following. By generations,most of the individuals already living at the time of the policy reform are those who are negatively affected by such policy change, since they attain a lower consumption profile as their income is taxed to finance the increase in education subsidies. On the benefit side, the individuals born when the policy reform is implemented and over are better off in terms of utility. The reason is that skilled workers enjoy a smoother consumption profile since borrowing constraints are less binding, and unskilled workers earn higher after-tax earnings. This utility gain is particularly higher for those individuals born in the initial periods of the transition. However for those individuals born in the fourth period of the transition and over, this gain is substantially reduced due to the loss of lifetime earnings associated with the rise of the social security tax rate that occurs over the adjustment between steady states. In particular, our results show that the rise of the social security tax rate makes skilled and unskilled individuals born in period six of the transition loose up to more than 10 000 and 7000 euros of 1980 of lifetime earnings, respectively. To put this figure into perspective, these numbers represent a 3.7 and 6.3% of lifetime earnings of the initial steady state (1980) for each type of agent. The rest of paper is organized as follows. The next section presents the model. Section 3 presents the calibration of the model. Section 4 discusses the main findings of the paper. Section 5 performs additional experiments and Section 6 concludes the paper.

This paper has analyzed the quantitative effects of subsidizing education on the financial sustainability of the social security system in a general equilibrium model where individuals are allowed to choose fertility and their educational attainment. The increase in the percentage of GNP spent on higher education has been substantial across developed countries. This fact and the expected increase in the proportion of retirees over the working population from 2025 to 2050 seems to justify the study of both phenomena since as it is shown in the paper, the later may well be a consequence of the former. In this sense, it is shown that when this interaction is taken into account, the efficiency gains of education subsidies are substantially lower since these also rise the social security tax rate needed to balance the pension budget. The reason is the change of the age structure of the population induced by the change in the educational attainment of that population. There are several ways in which the present analysis could be extended. On the one hand, this paper considers only one way in which individuals can take advantage from public expenditure on education (through education subsidies). It would be useful to investigate alternative ways in which public expenditure may increase the willingness of agents to attend college. On the other hand, the demographic change generated by the model is the result of a change in the educational composition of the population and the fertility decisions, taking as given the timing of reproduction. However, it is very likely that the demographic change in the data has also been generated by endogenous changes in the fertility timing behavior of agents. For this reason, a more sophisticated version of the model should consider the timing fertility decisions as an endogenous variable of the agent’s problem, e.g., Conesa (2000). This not only would help to improve the demographic change that the model predicts but also would shed additional light on the real increase in taxation needed to keep working the existing pay-as-you-go social security systems in western economies.