Why a switch from payg to funded pension system has no link to demographic development?
AbstractThe paper deals with a wide-spread myth that a switch from a PAYG to a funded pension system might solve adverse consequences of the population aging. It is shown, that under additional assumptions the pension debt (which is created during the process of the switch) is exactly equal to the value of assets that the pension funds accumulate. These additional assumptions are following: government imposes additional taxes, which are equal to the difference between the contributions to the former PAYG system and the contributions to the pension funds. Therefore workers contribute less to the pension funds but if the additional taxes are taken into account, they continue paying the same amount. It is shown, that if the additional taxes were permanently lower than what is supposed, the pension debt would grow beyond any limits. The other additional assumption made is that the interest rate paid by government from its pension debt is the same as the interest rate reached by the funds. If this assumption is relaxed, the qualitative conclusions do not change. Hence, demographic development cannot be used as an argument in favour of a switch of the pension system.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by University of Economics, Prague in its journal Politická ekonomie.
Volume (Year): 2008 (2008)
Issue (Month): 1 ()
Postal: Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vaclav Subrta).
If references are entirely missing, you can add them using this form.