Children as a public good in PAYG pension system

The paper takes the issue of perception of the offspring as a public good in PAYG pension schemes. Endogenous choices of individual agents leads to suboptimal fertility. Government intervention may lead to increased prosperity. The paper analyzes the effects of enriching the PAYG system with the elements of the maintenance system, binding directly the amount of pension to the fertility of the couple.
As an alternative scenario of the interference of the state, introducing subsidy that reduces the cost of bringing up children was considered. Moreover, the scenario allowing the possibility of a combination of all policies listed above was taken into account as well. The results of the simulations indicate clearly that government intervention has a positive effect on social welfare. The conclusions are consistent with the literature taking on that subject on a theoretical level.