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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. Matsen, Egil & Thogersen, Oystein, 2004. "Designing social security - a portfolio choice approach," European Economic Review, Elsevier, vol. 48(4), pages 883-904, August.
  2. Roel Beetsma & Ward E. Romp & Siert J. Vos, 2008. "Intergenerational Risk Sharing, Pensions and Endogenous Labor Supply in General Equilibrium," CESifo Working Paper Series 2185, CESifo Group Munich.
  3. Andreas Wagener, 2003. "Equilibrium dynamics with different types of pay-as-you-go pension schemes," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-12.
  4. Hans Fehr & Christian Habermann, 2005. "Risk Sharing and Efficiency Implications of Progressive Pension Arrangements," DNB Working Papers 064, Netherlands Central Bank, Research Department.
  5. 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.
  6. Dirk Kiesewetter & Rainer Niemann, 2002. "Neutral and Equitable Taxation of Pensions as Capital Income," CESifo Working Paper Series 706, CESifo Group Munich.
  7. Beetsma, Roel & Bovenberg, A Lans, 2007. "Pension systems, Intergenerational Risk Sharing and Inflation," CEPR Discussion Papers 6089, C.E.P.R. Discussion Papers.
  8. Beetsma, Roel & Bovenberg, A Lans & Romp, Ward E, 2008. "Funded Pensions and Intergenerational and International Risk Sharing in General Equilibrium," CEPR Discussion Papers 7106, C.E.P.R. Discussion Papers.
  9. 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.
  10. repec:ebl:ecbull:v:8:y:2003:i:6:p:1-12 is not listed on IDEAS
  11. Roel Beetsma & Alessandro Bucciol, 2011. "Risk Sharing in Defined-Contribution Funded Pension Systems," CESifo Working Paper Series 3640, CESifo Group Munich.
  12. Luciano Fanti, 2012. "PAYG pensions and fertility drop: some (pleasant) arithmetic," Discussion Papers 2012/147, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.

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