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The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest

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  • Settergren, Ole
  • Mikula, Boguslaw D.
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    Abstract

    The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/14227/1/pie_dp249.pdf
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    Bibliographic Info

    Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series Discussion Paper with number 249.

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    Length: 25 p.
    Date of creation: Jan 2005
    Date of revision:
    Handle: RePEc:hit:piedp1:249

    Note: 1 September 2003; 13 November 2004; 15 January 2005, This article will appear in the forthcoming World Bank publication: Pension Reform trough NDC:s Issues and Prospects for Non-Financial Defined Contribution Schemes, Robert Holzmann and Edward Palmer (eds.)
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    Related research

    Keywords: Social Security; Public Pensions; Internal rate of return; Accounting;

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    Cited by:
    1. Carsten Schröder, 2010. "Profitability of Pension Contributions: Evidence from Real-Life Employment Biographies," Discussion Papers of DIW Berlin 1057, DIW Berlin, German Institute for Economic Research.
    2. Alan J. Auerbach & Ronald Lee, 2009. "Welfare and Generational Equity in Sustainable Unfunded Pension Systems," NBER Working Papers 14682, National Bureau of Economic Research, Inc.
    3. Carlos Vidal-Meli� & María del Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.
    4. Carlos Vidal-Meliá & Inmaculada Domínguez-Fabián & María del Carmen Boado-Penas, . "Notional Defined Contribution Accounts (NDCs): Solvency and Risk; Application to the Case of Spain," Studies on the Spanish Economy 226, FEDEA.
    5. Lassila , Jukka & Valkonen, Tarmo, 2008. "Population ageing and fiscal sustainability in Finland: a stochastic analysis," Research Discussion Papers 28/2008, Bank of Finland.
    6. Hagen, Johannes, 2013. "A History of the Swedish Pension System," Working Paper Series, Center for Fiscal Studies 2013:7, Uppsala University, Department of Economics.

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