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The Economics of Pensions. Remarks on Growth, Distribution and Class Conflict

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  • Codrina Rada

Abstract

This paper compares fully-funded (FF) and pay-as-you-go (paygo) pension plans in a Keynesian framework for an economy with overlapping generations and excess capacity. The model addresses both short/medium run equilibria and steady-states. Income distribution and class conflict, two crucial aspects of the political economy of pensions, become multidimensional. In a fully-funded economy class conflict between capitalists and labor gets diffused in the short-run by retirees' own interest to maintain a high profit share. In the long-run capitalists recognize that they can control their (net) share of profits by controlling employment and therefore the number of future retirees through capital accumulation. An extension of the model can show that fiscal policy is not always helpful in a fully-funded economy. A pay-as-you-go economy maintains a closer resemblance to the classical story of class conflict over income distribution. This is because workers and retirees have their interests aligned with the wage share. In this case fiscal policy through spending can be effective without creating a debt problem.

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Bibliographic Info

Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2012_02.

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Length: 21 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:uta:papers:2012_02

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Keywords: social security; fully-funded; Keynesian OLG JEL Classification: E24; E12; G23; H55;

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  1. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
  2. Sergio Cesaratto, 2006. "Transition to fully funded pension schemes: a non-orthodox criticism," Cambridge Journal of Economics, Oxford University Press, vol. 30(1), pages 33-48, January.
  3. Taylor, Lance & Lysy, Frank J., 1979. "Vanishing income redistributions : Keynesian clues about model surprises in the short run," Journal of Development Economics, Elsevier, vol. 6(1), pages 11-29, February.
  4. Sergio Cesaratto, 2002. "The Economics of Pensions: A non-conventional approach," Review of Political Economy, Taylor & Francis Journals, vol. 14(2), pages 149-177.
  5. Teresa Ghilarducci, 1992. "Labor's Capital: The Economics and Politics of Private Pensions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262071398, December.
  6. Thomas R. Michl & Duncan K. Foley, 2004. "Social security in a Classical growth model," Cambridge Journal of Economics, Oxford University Press, vol. 28(1), pages 1-20, January.
  7. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  8. You, Jong-Il & Dutt, Amitava Krishna, 1996. "Government Debt, Income Distribution and Growth," Cambridge Journal of Economics, Oxford University Press, vol. 20(3), pages 335-51, May.
  9. Nelson H. Barbosa-Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy-A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, 07.
  10. Teresa Ghilarducci, 2010. "The future of retirement in aging societies," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(3), pages 319-331.
  11. Dutt, Amitava Krishna, 1984. "Stagnation, Income Distribution and Monopoly Power," Cambridge Journal of Economics, Oxford University Press, vol. 8(1), pages 25-40, March.
  12. Baker, Dean & Weisbrot, Mark, 2000. "Social Security," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226035444, March.
  13. Sergio Cesaratto, 2007. "Are PAYG and FF Pension Schemes Equivalent Systems? Macroeconomic Considerations in the Light of Alternative Economic Theories," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 449-473.
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