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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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  • Rowena A. Pecchenino
  • Patricia S. Pollard

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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Bibliographic Info

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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Cited by:
  1. Fanti, Luciano & Gori, Luca, 2010. "Increasing PAYG pension benefits and reducing contribution rates," Economics Letters, Elsevier, vol. 107(2), pages 81-84, May.
  2. repec:ebl:ecbull:v:10:y:2008:i:2:p:1-8 is not listed on IDEAS
  3. Luciano Fanti & Luca Gori, 2013. "Fertility-related pensions and cyclical instability," Journal of Population Economics, Springer, vol. 26(3), pages 1209-1232, July.

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