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On sustainable pay as you go systems

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  • Gabrielle Demange

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

An unfunded Social Security system faces the major risk, sometimes referred to as "political risk", that future generations modify or even suppress the contributions. In order to account properly for this risk, the paper considers a political process in which the support to the system is asked from each new born generation. The analysis is conducted in an overlapping generations economy that is subject to macro-economic shocks. As a consequence, the political support varies with the evolution of the economy. The impact of various factors -intra-generational redistribution, risk aversion, financial markets, governmental debt- on the political sustainability of a pay-as-you-go system is discussed.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00590859.

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Date of creation: Jan 2005
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Handle: RePEc:hal:psewpa:halshs-00590859

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Keywords: pay-as-you-go ; intra-generational redistribution ; overlapping generations ; social security system ; political economy ; risk;

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Cited by:
  1. Gabay, Daniel & Grasselli, Martino, 2012. "Fair demographic risk sharing in defined contribution pension systems," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(4), pages 657-669.

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