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PAYG pensions and economic cycles

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  • Fanti, Luciano
  • Gori, Luca

Abstract

This article analyses the dynamics of an overlapping generations economy (Diamond, 1965) with pay-as-you-go financed public pensions and myopic expectations. It is shown that large PAYG pensions triggers economic fluctuations depending on the mutual relationship between technology and preference parameters. Our findings constitute a policy warning about the size of social security and provide another explanation of the occurrence of persistent cycles.

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File URL: http://mpra.ub.uni-muenchen.de/19984/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19984.

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Date of creation: 12 Jan 2010
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Handle: RePEc:pra:mprapa:19984

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Keywords: Myopic foresight; PAYG pensions; Stability; OLG model;

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References

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  1. Zhang, Junsen & Zhang, Jie & Lee, Ronald, 2001. "Mortality decline and long-run economic growth," Journal of Public Economics, Elsevier, Elsevier, vol. 80(3), pages 485-507, June.
  2. Zhang, Jie & Zhang, Junsen & Lee, Ronald, 2003. "Rising longevity, education, savings, and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 70(1), pages 83-101, February.
  3. Luciano Fanti & Luca Spataro, 2007. "Poverty traps and intergenerational transfers," Discussion Papers 2007/66, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  4. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, Elsevier, vol. 40(1), pages 89-102, October.
  5. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  6. repec:ebl:ecbull:v:8:y:2003:i:6:p:1-12 is not listed on IDEAS
  7. Michel P. & de la Croix, D., 1999. "Myopic and Perfect Foresight in the OLG Model," G.R.E.Q.A.M., Universite Aix-Marseille III 99a35, Universite Aix-Marseille III.
  8. Francisco Rodríguez & Daniel Ortega, 2006. "Are capital shares higher in poor countries? Evidence from Industrial Surveys," Wesleyan Economics Working Papers, Wesleyan University, Department of Economics 2006-023, Wesleyan University, Department of Economics.
  9. Luca Gori & Luciano Fanti, 2008. "Longevity and PAYG pension systems sustainability," Economics Bulletin, AccessEcon, vol. 10(2), pages 1-8.
  10. repec:ebl:ecbull:v:10:y:2008:i:2:p:1-8 is not listed on IDEAS
  11. Andreas Wagener, 2003. "Equilibrium dynamics with different types of pay-as-you-go pension schemes," Economics Bulletin, AccessEcon, vol. 8(6), pages 1-12.
  12. Farmer, Roger E. A., 1986. "Deficits and cycles," Journal of Economic Theory, Elsevier, Elsevier, vol. 40(1), pages 77-88, October.
  13. van Groezen, Bas & Leers, Theo & Meijdam, Lex, 2003. "Social security and endogenous fertility: pensions and child allowances as siamese twins," Journal of Public Economics, Elsevier, Elsevier, vol. 87(2), pages 233-251, February.
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Citations

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Cited by:
  1. Luciano Fanti & Luca Gori, 2012. "Endogenous Lifetime in an Overlapping-Generations Small Open Economy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 68(2), pages 121-152, June.
  2. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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