The Value of Children and Immigrants in a Pay-as-you-go Pension System: A Proposal for a Partial Transition to a Funded System

It is shown that the net fiscal externality created by an additional member of a Pay-as-you-go- pension system that is endowed with individual accounts equals the gross contributions of this member. In Germany, this is an amount of about DM 175,000. The paper uses this information to design a hybrid funded system that avoids this externality and improves the public pension system under equity and efficiency considerations.