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Aging, myopia and the pay-as-you-go public pension systems of the G7: a bright future?

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Author Info
Rowena A. Pecchenino
Patricia S. Pollard

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Abstract

The public pension systems of the G7 countries were established in an era when the number of contributors far outweighed the number of beneficiaries. Now, for each beneficiary there are fewer contributors, and this trend is projected to accelerate. To evaluate the prospects for these economies we develop an overlapping generations model where growth is endogenously fueled by investments in physical and human capital. We analyze individuals' behavior when their expectations over their length of life are rational or myopic and examine whether policies exist that can offset the effects of aging, should they be adverse. We find that while perfectly anticipated aging is welfare improving and does not threaten the solvency of public pension systems, myopia worsens welfare, puts pension systems at risk, and cannot be easily remedied by public policy.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2000-015.

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Date of creation: 2003
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Handle: RePEc:fip:fedlwp:2000-015

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Keywords: Social security;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Feldstein, Martin S, 1985. "The Optimal Level of Social Security Benefits," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 303-20, May. [Downloadable!] (restricted)
    Other versions:
  4. Rowena A. Pecchenino & Patricia S. Pollard, 2000. "Dependent children and aged parents: funding education and social security in an aging economy," Working Papers 1995-001, Federal Reserve Bank of St. Louis. [Downloadable!]
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  5. Paul R. Masson & Ralph W. Tryon, 1990. "Macroeconomic Effects Of Projected Population Aging In Industrial Countries," IMF Working Papers 90/5, International Monetary Fund.
  6. Ketil Hviding & Marcel Mérette, 1998. "Macroeconomic Effects of Pension Reforms in The Context of Ageing Populations: Overlapping Generations Model Simulations for Seven OECD Countries," OECD Economics Department Working Papers 201, OECD, Economics Department. [Downloadable!]
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    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier. [Downloadable!] (restricted)
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  10. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec.. [Downloadable!] (restricted)
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  13. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February. [Downloadable!] (restricted)
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  14. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-18, May. [Downloadable!] (restricted)
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  17. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-59, October. [Downloadable!] (restricted)
  18. Deborah Roseveare & Willi Leibfritz & Douglas Fore & Eckhard Wurzel, 1996. "Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries," OECD Economics Department Working Papers 168, OECD, Economics Department. [Downloadable!]
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  20. Albert Jaeger & Sheetal K. Chand, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 147, International Monetary Fund. [Downloadable!]
  21. Cigno, Alessandro & Rosati, Furio C., 1996. "Jointly determined saving and fertility behaviour: Theory, and estimates for Germany, Italy, UK and USA," European Economic Review, Elsevier, vol. 40(8), pages 1561-1589, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luciano Fanti & Luca Gori, 2008. "Longevity and PAYG pension systems sustainability," Economics Bulletin, Economics Bulletin, vol. 10(2), pages 1-8. [Downloadable!]
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