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Can and Should a Pay-As-You-Go Pension System Mimic a Funded System?

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Author Info
Hassler, John (Institute for International Economic Studies)
Lindbeck, Assar () (The Research Institute of Industrial Economics)

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Abstract

This paper considers the possibility of letting a pay-go pension system mimic a fully funded pension system. Generically, it turns out to be impossible to make a less than fully funded pension system actuarially fair on average. But a non-funded pay-go pension system can provide an actuarially fair implicit return on the margin, which increases economic efficiency. The benefits of this fall entirely on current pensioners as a windfall gain unless compensating transfers are implemented. Such a system can be thought of as a pay-go system that mimics a fully funded pension system in combination with lump transfers to current pensioners from current and future workers.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 499.

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Length: 18 pages
Date of creation: 04 Jun 1998
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Handle: RePEc:hhs:iuiwop:0499

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Related research
Keywords: Pension systems Pay-as-you-go Actuarial Funding

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Find related papers by JEL classification:
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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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. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
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  2. Hassler, John & Lindbeck, Assar, 1997. "Optimal actuarial fairness in pension systems: A note," Economics Letters, Elsevier, vol. 55(2), pages 251-255, August. [Downloadable!] (restricted)
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  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  4. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October. [Downloadable!] (restricted)
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Cited by:
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  1. Friedrich Breyer & Mathias Kifmann, 2001. "Incentives to Retire Later : A Solution to the Social Security Crisis?," Discussion Papers of DIW Berlin 266, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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