Hassler, John () (Institute for International Economic Studies, Stockholm University) Lindbeck, Assar () (Institute for International Economic Studies, Stockholm University)
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A rationale for a compulsory pension system is that the government wants to correct supposedly myopic behavior by the individuals. Given the existence of such a system, we calculate the optimal relation between marginal contributions and benefits, i.e., the optimal degree of marginal actuarial fairness, as seen from the point of view of the individuals or of the government. The following is shown to hold under general assumptions of individual utility: The optimal degree of marginal actuarial fairness increases in the rate of return in the social security system and decreases in the government’s rate of time preference. If the government’s rate of time preference is lower than the individual’s, the government gains more than the individuals by making the system more actuarially fair. It is also shown that labor supply always increases when the link between marginal contributions and benefits is strengthened.
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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number
609.
Length: 14 pages Date of creation: 03 Nov 1997 Date of revision: Handle: RePEc:hhs:iiessp:0609
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Find related papers by JEL classification: H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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