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Optimal Sharing of Labor Productivity Risks and Mix of Pay-As-You-Go and Savings

Author

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  • Debora Kusmerski Bilard

    (University of Amsterdam)

Abstract

The paper addresses two related issues: the optimal intergenerational sharing of laborproductivity risks, through a Pay-As-You-Go (PAYG) social security, and the mix ofPAYG and savings for retirement provision in a small open economy. It shows that partial contingency of the social security on the stochastic labor productivity is ex ante optimal,when the interest rate is above the expected growth rate of the economy and when thegovernment has a lifetime perspective of the risk exposure. The paper also provides acondition for partial displacement of savings by the PAYG, which is in line with vastempirical evidence.

Suggested Citation

  • Debora Kusmerski Bilard, 2008. "Optimal Sharing of Labor Productivity Risks and Mix of Pay-As-You-Go and Savings," Tinbergen Institute Discussion Papers 08-066/1, Tinbergen Institute, revised 09 Aug 2012.
    • Handle: RePEc:tin:wpaper:20080066
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    References listed on IDEAS

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    More about this item

    Keywords

    intergenerational risk sharing; PAYG social security; household's savings;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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