Generational Accounting, Solidarity and Pension Losses
AbstractThe creeping stock market collapse eroded the wealth of funded pension systems. This led to political tensions between generations due to the fuzzy definition of property rights on the pension funds wealth. We argue that this problem can best be resolved by the introduction of generational accounts. Using modern portfolio and consumption planning theory we show that the younger generations should have the higher equity exposure due to their human capital. Capital losses should be distributed smoothly over lifetime consumption. When stock markets are depressed equity should be bought, savings and consumption should be scaled down equiproportionally, and retirement should be postponed. Portfolio investment restrictions are quite costly.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 961.
Length: 20 pages
Date of creation: Dec 2003
Date of revision:
Publication status: published in: De Economist, 2006, 154 (1), 63-83
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Other versions of this item:
- Coen Teulings & Casper Vries, 2006. "Generational Accounting, Solidarity and Pension Losses," De Economist, Springer, vol. 154(1), pages 63-83, 03.
- de Vries, Casper G & Teulings, Coen N, 2004. "Generational Accounting, Solidarity and Pension Losses," CEPR Discussion Papers 4209, C.E.P.R. Discussion Papers.
- E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
- G2 - Financial Economics - - Financial Institutions and Services
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-01-08 (All new papers)
- NEP-MAC-2004-01-08 (Macroeconomics)
- NEP-PBE-2004-01-08 (Public Economics)
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