Ifo President Delivers Tinbergen Lecture

ifo press release, 22 October 2004

Ifo Institute President Hans-Werner Sinn is the first German economist to give the Tinbergen Lecture.

The invitation to hold the lecture is extended by a selection committee of the Association and is considered one of the highest international honours in the field. Amongst previous lecturers were Lawrence Klein, James Tobin, Robert Solow, Franco Modigliani and Joseph Stiglitz, Paul Krugman, Olivier Blanchard and Martin Feldstein.

Together with Japan, the European countries occupy the lowest rungs in the international birth-rate statistics. Within 50 years, the EU will have lost 20 million people, while the USA will have gained 124 million. This continent will lose dynamism if the steadily deteriorating birth rate is not checked. In his lecture, Sinn analyses the implications of the European demographic decline for innovation, economic growth and the pensions systems in Europe, and he examines the root causes for this development.

He identifies as the central cause the elimination of the investment incentive when the moment comes of adopting the decision of having children, itself a result of the introduction of pay-as-you-go (PAYGO) pension system and the socialising of children’s contributions to pension insurance. Consequently, Sinn calls for a stronger differentiation of the PAYGO pensions according to the number of children, with a compensation for the remaining portion coming from a funded pension scheme. Specifically, he suggests capping the legal rent by freezing both contributions and state subsidies, introducing a tax-financed "child pension" towards providing pension insurance for the parents, and the requirement of childless people to accumulate capital for their old age. His suggestions would solve the acute pension crisis future pensioners will face in about thirty years, reducing at the same time the contribution and tax burden the future generations would have to shoulder. Additionally, his proposals would result in a major contribution towards stabilising the European demographic evolution. Sinn stresses the fact that his reform proposals do not entail government intervention in family planning; quite the contrary, the current state intervention in pension schemes would be thereby reduced. Free will in family planning would be accorded more latitude.

„Europe’s Demographic Deficit. A Plea for a Child Pension System“, De Economist 153, 2005, pp. 1-45; Tinbergen Lectures, Amsterdam, October 22, 2004.