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Optimal Sharing of Labor Productivity Risks and Mix of Pay-As-You-Go and Savings

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  • Debora Kusmerski Bilard

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    (University of Amsterdam)

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    Abstract

    The paper addresses two related issues: the optimal intergenerational sharing of laborproductivity risks, through a Pay-As-You-Go (PAYG) social security, and the mix ofPAYG and savings for retirement provision in a small open economy. It shows that partial contingency of the social security on the stochastic labor productivity is ex ante optimal,when the interest rate is above the expected growth rate of the economy and when thegovernment has a lifetime perspective of the risk exposure. The paper also provides acondition for partial displacement of savings by the PAYG, which is in line with vastempirical evidence.

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    File URL: http://papers.tinbergen.nl/08066.pdf
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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-066/1.

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    Date of creation: 14 Jul 2008
    Date of revision: 09 Aug 2012
    Handle: RePEc:dgr:uvatin:20080066

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: intergenerational risk sharing; PAYG social security; household's savings;

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    1. Weil, Philippe, 1987. "Love thy children : Reflections on the Barro debt neutrality theorem," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 377-391, May.
    2. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151, October.
    3. Roger H. Gordon & Hal R. Varian, 1985. "Intergenerational Risk Sharing," NBER Working Papers 1730, National Bureau of Economic Research, Inc.
    4. Wolfram Richter, 1993. "Intergenerational risk sharing and social security in an economy with land," Journal of Economics, Springer, vol. 7(1), pages 91-103, December.
    5. Antonio Rangel & Richard Zeckhauser, 1999. "Can Market and Voting Institutions Generate Optimal Intergenerational Risk Sharing?," NBER Working Papers 6949, National Bureau of Economic Research, Inc.
    6. Richard Kohl & Paul O'Brien, 1998. "The Macroeconomics of Ageing, Pensions and Savings: A Survey," OECD Economics Department Working Papers 200, OECD Publishing.
    7. Enders, Walter & Lapan, Harvey E., 1982. "Social Security Taxation and Inter-Generational Risk Sharing," Staff General Research Papers 10822, Iowa State University, Department of Economics.
    8. Henning Bohn, 2004. "Intergenerational Risk Sharing and Fiscal Policy," 2004 Meeting Papers 22, Society for Economic Dynamics.
    9. Heijdra, Ben J., 2009. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 2, number 9780199210695.
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