This paper sets up an OLG economy with endogenous life expectancy to study how fiscal policy that redistributes between generations can open the door to sunspot equilibria. Agents invest independently in their own human capital, produce and consume output, and receive a pension upon retirement....

In a model where longevity increases with average human capital, self-fulfilling prophecies of ageing can occur. If agents expect a low life expectancy they invest less in education, thus generating low human capital and longevity. As a result, policies that affect longevity expectations may be...