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The Effects of Annuities, Bequests, and Aging in an Overlapping Generations Model of Endogenous Growth

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  • Pecchenino, Rowena A
  • Pollard, Patricia S

Abstract

The authors examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth. The complete annuitisation of agents' wealth is not, in general, dynamically optimal; the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay-as-you-go social security tax rate. The government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay-as-you-go to a fully-funded social security system via voluntary contributions to a government sponsored, actuarially fair pension today accompanied by reductions in social security taxes tomorrow. Copyright 1997 by Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 107 (1997)
Issue (Month): 440 (January)
Pages: 26-46

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Handle: RePEc:ecj:econjl:v:107:y:1997:i:440:p:26-46

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  1. Saint-Paul, G., 1991. "Fiscal Policy In An Endogenous Growth Model," DELTA Working Papers 91-04, DELTA (Ecole normale supérieure).
  2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
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  6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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  9. Hamermesh, Daniel S, 1984. "Life-Cycle Effects on Consumption and Retirement," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 353-70, July.
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  11. Auerbach, A.J. & Kotlikoff, L.J. & Weil, D.N., 1992. "The Increasing Annuitization of the Elderly - Estimates and Implications for Intergenerational Transfers, Inequality and National Saving," Papers 6, Boston University - Department of Economics.
  12. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
  13. Sheshinski, Eytan & Weiss, Yoram, 1981. "Uncertainty and Optimal Social Security Systems," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 189-206, May.
  14. Martin S. Eichenbaum & Dan S. Peled, 1986. "Capital Accumulation and Annuities in an Adverse Selection Economy," NBER Working Papers 2046, National Bureau of Economic Research, Inc.
  15. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  16. David N. Weil, 1993. "Intergenerational Transfers, Aging, and Uncertainty," NBER Working Papers 4477, National Bureau of Economic Research, Inc.
  17. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
  18. Eckstein, Zvi & Eichenbaum, Martin S & Peled, Dan, 1985. "The Distribution of Wealth and Welfare in the Presence of Incomplete Annuity Markets," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 789-806, August.
  19. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
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