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Pay-As-You-Go versus funded systems. Some critical considerations

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  • Eladio Febrero
  • Maria-Angeles Cadarso

Abstract

Longer life expectancy and lower fertility rates will lead to an ageing population in most Western countries. This is thought to make earnings-based defined-benefit pay-as-you-go pension schemes unviable in the near future. Some economists suggest shifting towards a capitalized funded system grounding their proposal on the following advantages: (i) it raises national saving, thus leading to a faster rate of accumulation and a larger per capita income; (ii) it offers a higher rate of return on savings; (iii) it is immune to demographic shifts. In this paper we explore the fundamentals of these advantages, and conclude that the theoretical basis supporting them is very weak. We base our theoretical standpoint on the Sraffian-based capital critique and the theory of endogenous money. Additionally, we defend a parametric reform of a standard PAYG using figures that correspond to the Spanish economy for the period 2001-70.

Suggested Citation

  • Eladio Febrero & Maria-Angeles Cadarso, 2006. "Pay-As-You-Go versus funded systems. Some critical considerations," Review of Political Economy, Taylor & Francis Journals, vol. 18(3), pages 335-357.
    • Handle: RePEc:taf:revpoe:v:18:y:2006:i:3:p:335-357
    DOI: 10.1080/09538250600797792
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    References listed on IDEAS

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    Cited by:

    1. Renuga Nagarajan & Aurora A.C. Teixeira & Sandra T. Silva, 2013. "The impact of population ageing on economic growth: an in-depth bibliometric analysis," FEP Working Papers 505, Universidade do Porto, Faculdade de Economia do Porto.
    2. María del Carmen Valls Martínez & José Manuel Santos-Jaén & Fahim-ul Amin & Pedro Antonio Martín-Cervantes, 2021. "Pensions, Ageing and Social Security Research: Literature Review and Global Trends," Mathematics, MDPI, vol. 9(24), pages 1-25, December.
    3. repec:zbw:rwirep:0238 is not listed on IDEAS
    4. Jopp, Tobias Alexander, 2011. "Old Times, Better Times? German Miners' Knappschaften, Pay-as-you-go Pensions, and Implicit Rates of Return, 1854–1913," Ruhr Economic Papers 238, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Tobias A. Jopp, 2011. "Old Times, Better Times? German Miners’ Knappschaften, Pay-as-you-go Pensions, and Implicit Rates of Return, 1854–1913," Ruhr Economic Papers 0238, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Ulrich van Suntum, "undated". "A way out of pay-as-you-go without a double burden," Working Papers 200105, Institute of Spatial and Housing Economics, Munster Universitary.
    7. Bermejo Patón, Fernando & Febrero Paños, Eladio & Uxó González, Jorge, 2015. "La sostenibilidad del sistema español de pensiones: Una aproximación alternativa/Sustainability of the Spanish Pension System: An Alternative View," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 33, pages 783-800, Septiembr.
    8. Álvaro Martín Moreno R. & Fabio Ortiz, 2010. "Economía política de la reforma del sistema colombiano de pensiones," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 12(22), pages 167-192, January-J.
    9. van Suntum, Ulrich, 2010. "A way out of pay-as-you-go without a double burden," CAWM Discussion Papers 27, University of Münster, Münster Center for Economic Policy (MEP).

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