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On intergenerational risk sharing within social security schemes

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  • Wagener, Andreas

Abstract

One of the main reasons to include pay-as-you-go (PAYG) schemes in multi-pillared pension systems is that they may entail beneficial risk-sharing and diversification features However, depending on the “pension formula” these features vary significantly for different types of PAYG schemes. We derive individually most-preferred PAYG rules (represented by a risk-sharing parameter) for young and old members of a society. These preferences depend among others on the correlation between the risks of PAYG scheme and funded schemes and on the trust in the durability of the pension rule. We find that the generations’ interests with respect to the optimal PAYG policy need not necessarily clash, in particular not if future economic conditions are expected to be similar to today’s. We discuss the implications of these findings for the political economy of multi-pillar pension systems.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 20 (2004)
Issue (Month): 1 (March)
Pages: 181-206

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Handle: RePEc:eee:poleco:v:20:y:2004:i:1:p:181-206

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Web page: http://www.elsevier.com/locate/inca/505544

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References

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Citations

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Cited by:
  1. R. Beetsma & A. L. Bovenberg, 2006. "Pension systems, intergenerational risk sharing and inflation," European Economy - Economic Papers 257, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Beetsma, Roel M.W.J. & Bovenberg, A. Lans & Romp, Ward E., 2011. "Funded pensions and intergenerational and international risk sharing in general equilibrium," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1516-1534.
  3. Roel M. W. J. Beetsma & Ward E. Romp & Siert J. Vos, 2013. "Intergenerational Risk Sharing, Pensions, and Endogenous Labour Supply in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 141-154, 01.
  4. Zamac , Jovan, 2005. "Winners and Losers from a Demographic Shock under Different Intergenerational Transfer Schemes," Working Paper Series 2005:13, Uppsala University, Department of Economics.
  5. Roel Beetsma & Alessandro Bucciol, 2011. "Risk Sharing in Defined-Contribution Funded Pension Systems," CESifo Working Paper Series 3640, CESifo Group Munich.
  6. Hans Fehr & Christian Habermann, 2005. "Risk Sharing and Efficiency Implications of Progressive Pension Arrangements," DNB Working Papers 064, Netherlands Central Bank, Research Department.
  7. Dirk Kiesewetter & Rainer Niemann, 2002. "Neutral and Equitable Taxation of Pensions as Capital Income," CESifo Working Paper Series 706, CESifo Group Munich.
  8. Knell, Markus, 2010. "How automatic adjustment factors affect the internal rate of return of PAYG pension systems," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(01), pages 1-23, January.
  9. repec:ebl:ecbull:v:8:y:2003:i:6:p:1-12 is not listed on IDEAS
  10. Zamac, Jovan, 2007. "Pension design when fertility fluctuates: The role of education and capital mobility," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 619-639, April.
  11. Andreas Wagener, 2003. "Equilibrium dynamics with different types of pay-as-you-go pension schemes," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-12.
  12. Egil Matsen & Øystein Thøgersen, 2000. "Designing Social Security – A Portfolio Choice Approach," Working Paper Series 1102, Department of Economics, Norwegian University of Science and Technology.
  13. Luciano Fanti, 2012. "PAYG pensions and fertility drop: some (pleasant) arithmetic," Discussion Papers 2012/147, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  14. Roel Beetsma & Ward Romp, 2013. "Participation Constraints in Pension Systems," Tinbergen Institute Discussion Papers 13-149/VI, Tinbergen Institute.

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