The Reform of Pension Systems: Winners and Losers Across Generations
AbstractIn this paper we perform simulations with a stylized model of Germany and the United Kingdom to show which generations might be direct gainers, and which losers, from a transition to funded state pensions. We estimate what the structure of inter-generational bequests would need to be in a pre-reform equilibrium for different generations to be insulated from the effects of a transition to a fully funded pension system. We calibrate a simple overlapping generations model and estimate the money value of the losses or gains to each generation as the unfunded state system is wound down. If there is altruism toward future generations, bequests of wealth are likely to exist. We show that it is likely that more than one generation will be direct losers as a result of a transition (especially in Germany). If more than one generation are direct losers, then in order for those generations not to be net losers, the chain of bequests (in the initial equilibrium) needs to satisfy a simple condition: this is that the cumulated value of the sum of losses of all the previous generations that are direct losers needs to be less than the pre-reform bequest of each generation to the next generation.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1943.
Date of creation: Aug 1998
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Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
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- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
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- Richard Disney & Robert Palacios & Edward Whitehouse, 1999. "Individual choice of pension arrangement as a pension reform strategy," IFS Working Papers W99/18, Institute for Fiscal Studies.
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