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Generational Accounting, Solidarity and Pension Losses

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  • Coen Teulings

    ()

  • Casper Vries

    ()

Abstract

The creeping stock market collapse eroded the wealth of funded pension systems. This led to political tensions between generations due to the fuzzy definition of property rights on the pension funds wealth. We argue that this problem can best be resolved by the introduction of generational accounts. Using modern portfolio and consumption planning theory we show that the younger generations should have the higher equity exposure due to their human capital. Capital losses should be distributed smoothly over lifetime consumption. When stock markets are depressed equity should be bought, savings and consumption should be scaled down equiproportionally, and retirement should be postponed. Portfolio investment restrictions are quite costly.

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File URL: http://hdl.handle.net/10.1007/s10645-006-6486-y
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Bibliographic Info

Article provided by Springer in its journal De Economist.

Volume (Year): 154 (2006)
Issue (Month): 1 (03)
Pages: 63-83

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Handle: RePEc:kap:decono:v:154:y:2006:i:1:p:63-83

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Web page: http://www.springerlink.com/link.asp?id=100260

Related research

Keywords: Pension funds; generational accounts; portfolio choice; Life cycle Models; D91; G11; G23;

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  1. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  2. Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers 1988_05, Columbia University, Department of Economics.
  3. Hendricks, Ken & Judd, Ken & Kovenock, Dan, 1980. "A note on the core of the overlapping generations model," Economics Letters, Elsevier, vol. 6(2), pages 95-97.
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