The Impact of Public Pension Provision on Investment in Education: Perspectives on the Recent Literature

The aim of this paper is to review the literature that investigates the relationship among unfunded social security systems, individual incentives to investments in human capital and economic growth. Several endogenous growth models study investments in education in economies in which there are old age pension transfers. In this perspective, both individual choices about consumption and saving and decisions about education of children are correlated each other in processes of intergenerational and intertemporal choice. Public transfers for education (to the young generation) and pensions play an important role in the economic growth since they have a great influence on physical and human capital accumulation. Hence, this paper suggest that pay-as-you-go system should be redesigned to achieve its usual intertemporal and intergenerational redistributive function and to play an important role in providing stronger incentives to human capital investments of young generations. In this way, pay-as-you-go social security system should increase economic growth and welfare.