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Pension systems, Intergenerational Risk Sharing and Inflation

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  • Beetsma, Roel
  • Bovenberg, A Lans

Abstract

We investigate intergenerational risk sharing in two-pillar pension systems with a pay-as-you-go pillar and a funded pillar. We consider shocks in productivity, depreciation of capital and inflation. The funded pension pillar can be either defined contribution or defined benefit, with benefits defined in real or nominal terms or indexed to wages. Optimal intergenerational risk sharing can be achieved only in the presence of a defined benefit pension system with appropriate restrictions on investment policy of the funded pillar. In this way, both generations have similar exposures to financial and human capital risks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6089.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6089

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Keywords: (funded) pensions; fiscal policy; nominal assets; overlapping generations; risk sharing;

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  1. Hans Fehr & Christian Habermann, 2005. "Risk Sharing and Efficiency Implications of Progressive Pension Arrangements," CESifo Working Paper Series 1568, CESifo Group Munich.
  2. Alan J. Auerbach & Kevin A. Hassett, 2002. "Optimal Long-Run Fiscal Policy: Constraints, Preferences and the Resolution of Uncertainty," NBER Working Papers 9132, National Bureau of Economic Research, Inc.
  3. Lans Bovenberg & Harald Uhlig, 2006. "Pension Sytems and the Allocation of Macroeconomic Risk," SFB 649 Discussion Papers SFB649DP2006-066, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Torben Andersen, 2005. "Social Security and Longevity," CESifo Working Paper Series 1577, CESifo Group Munich.
  5. Gottardi, Piero & Kubler, Felix, 2011. "Social security and risk sharing," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1078-1106, May.
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  15. Enders, Walter & Lapan, Harvey E, 1982. "Social Security Taxation and Intergenerational Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 647-58, October.
  16. Gabrielle Demange, 2002. "On optimality in intergenerational risk sharing," Economic Theory, Springer, vol. 20(1), pages 1-27.
  17. Dirk Krueger & Felix Kubler, 2002. "Intergenerational Risk-Sharing via Social Security when Financial Markets Are Incomplete," American Economic Review, American Economic Association, vol. 92(2), pages 407-410, May.
  18. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February.
  19. De Jong, Frank, 2008. "Valuation of pension liabilities in incomplete markets," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(03), pages 277-294, November.
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Cited by:
  1. Callan, Tim & Keane, Claire & Walsh, John R., 2009. "Pension Policy: New Evidence on Key Issues," Research Series, Economic and Social Research Institute (ESRI), number RS14.

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