Optimal Sharing of Labor Productivity Risks and Mix of Pay-As-You-Go and Savings
AbstractThe 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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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-066/1.
Date of creation: 14 Jul 2008
Date of revision: 09 Aug 2012
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intergenerational risk sharing; PAYG social security; household's savings;
Find related papers by JEL classification:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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