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How Sustainable Are Old-age Pensions in a Shrinking Population with Endogenous Labour Supply?

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  • Pedro Cardoso
  • Bernard M.S. van Praag

Abstract

In this paper we model an OLG-economy where labour supply is endogenously determined and where we assume that there are two pension systems, namely, a pay-as-you-go system and a funded system. The main question is whether there is an equilibrium involving an old-age pensions system, partly financed by PAYG and partly by a capital reserve system, and what will be the size and the composition of the pension income. We also look at the consequences of increasing preference for leisure on the design of the pension system. We assume the population growth rate and the technological growth rate to be endogenous; they are assumed to be correlated with the labour supply. Negative population growth is admitted for by the model. The main conclusion is that there is in any economy an equilibrium, but that the numerical outcomes heavily depend on the attitude towards leisure and the capital production elasticity

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 861.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_861

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Keywords: ageing; labour supply; old-age pensions; pay-as-you-go;

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References

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  1. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, Elsevier, vol. 18(1), pages 1-29, March.
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  6. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2003. "Voting on Pensions with Endogenous Retirement Age," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3778, C.E.P.R. Discussion Papers.
  7. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
  8. Raffelhuschen, Bernd & Risa, Alf Erling, 1995. "Reforming social security in a small open economy," European Journal of Political Economy, Elsevier, Elsevier, vol. 11(3), pages 469-485, September.
  9. Friedrich Breyer & Klaus Stolte, 2000. "Demographic Change, Endogenous Labor Supply and the Political Feasibility of Pension Reform," Discussion Papers of DIW Berlin 202, DIW Berlin, German Institute for Economic Research.
  10. MICHEL, Philippe & PESTIEAU, Pierre, 1999. "Social security and early retirement in an overlapping-generations growth model," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1999051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, Springer, vol. 10(3), pages 335-356.
  13. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  14. Nishimura, K. & Zhang, J., 1990. "Pay-As-You-Go Public Pensions With Endogenous Fertility," Papers, Australian National University - Department of Economics 202, Australian National University - Department of Economics.
  15. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 467.
  16. Lettau, Michael K., 1997. "Compensation in part-time jobs versus full-time jobs What if the job is the same?," Economics Letters, Elsevier, Elsevier, vol. 56(1), pages 101-106, September.
  17. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(1), pages 135-160, February.
  18. Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-44, October.
  19. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
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Cited by:
  1. Peter Kooreman, 2007. "Time, money, peers, and parents; some data and theories on teenage behavior," Journal of Population Economics, Springer, Springer, vol. 20(1), pages 9-33, February.

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