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Funded Pensions and Unemployment

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Author Info

  • Roland Demmel
  • Christian Keuschnigg

Abstract

Pay-as-you-go (PAYG) pension schemes are becoming increasingly unsustainable in the face of drastic population aging. Simultaneously, the contribution rates may aggravate an already serious unemployment problem. A regime switch to a funded system could help to alleviate the unemployment problem in addition to restoring sustainability of social security. This paper asks how the transition to a partially funded system is implemented such that all generations may share in the efficiency gains from lower unemployment. We propose a welfare based transition scheme that cuts contributions to the PAYG system and uses public debt to compensate old generations for their previously acquired pension claims. Relying on an overlapping generations framework with union wage setting, we show that this reform reduces unemployment, boosts capital accumulation and yields welfare gains to present and future generations.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 57 (2000)
Issue (Month): 1 (September)
Pages: 22-

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200009)57:1_22:fpau_2.0.tx_2-h

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References

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  1. Brunner, Johann K., 1996. "Transition from a pay-as-you-go to a fully funded pension system: The case of differing individuals and intragenerational fairness," Journal of Public Economics, Elsevier, vol. 60(1), pages 131-146, April.
  2. Homburg, Stefan, 2014. "The Efficiency of Unfunded Pension Schemes," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-523, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 183-191..
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Citations

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Cited by:
  1. Keuschnigg, Christian & Fisher, Walter, 2011. "Life-Cycle Unemployment, Retirement and Parametric Pension Reform," Economics Working Paper Series 1119, University of St. Gallen, School of Economics and Political Science.
  2. Tetsuo Ono, 2010. "Growth and unemployment in an OLG economy with public pensions," Journal of Population Economics, Springer, vol. 23(2), pages 737-767, March.
  3. Tatiana Damjanovic, 2005. "On the Possibility of Pareto-improving Pension Reform," CRIEFF Discussion Papers 0504, Centre for Research into Industry, Enterprise, Finance and the Firm.
  4. Marko Köthenbürger & Panu Poutvaara, 2004. "Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?," Public Economics 0404008, EconWPA.
  5. Christian Keuschnigg & Mirela Keuschnigg, 2004. "Aging, Labor Markets and Pension Reform in Austria," University of St. Gallen Department of Economics working paper series 2004 2004-03, Department of Economics, University of St. Gallen.
  6. Walter H. Fisher & Christian Keuschnigg, 2007. "Pension Reform and Labor Market Incentives," University of St. Gallen Department of Economics working paper series 2007 2007-13, Department of Economics, University of St. Gallen.
  7. Eric O'N. Fisher & Mark A. Roberts, 2002. "Funded Pensions, Labor Market Participation, and Economic Growth," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(3), pages 371-, August.
  8. Antonis Adam & Thomas Moutos, 2009. "Pension Funding In A Unionized Economy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 213-231, 05.
  9. Kai A. Konrad & Gert Wagner, 2000. "Reform of the Public Pension System in Germany," Discussion Papers of DIW Berlin 200, DIW Berlin, German Institute for Economic Research.
  10. Casamatta, Georges & De Paoli, Caroline, 2007. "Choosing the Legal Retirement Age in Presence of Unemployment," CEPR Discussion Papers 6263, C.E.P.R. Discussion Papers.

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