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The transfer paradox in a pay-as-you-go pension system

Author

Listed:
  • Kojun Hamada

    (Faculty of Economics, Niigata University)

  • Akihiko Kaneko

    (Faculty of Political Science and Economics, Waseda University)

  • Mitsuyoshi Yanagihara

    (Graduate School of Economics, Nagoya University)

Abstract

We examine how international transfer affects welfare levels of a donor with a higher marginal propensity to save and a recipient with a lower marginal propensity to save, when both countries adopt a pay-as-you-go (PAYG) pension system using a one-sector overlapping generations model. A PAYG pension scheme is found to lead to impairment of the donor and of the recipient as a result of the transfer under the dynamic efficiency condition. This is because the transfer increases the divergence in the rate of return between PAYG and private savings.

Suggested Citation

  • Kojun Hamada & Akihiko Kaneko & Mitsuyoshi Yanagihara, 2014. "The transfer paradox in a pay-as-you-go pension system," Working Papers 1405, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:1405
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    References listed on IDEAS

    as
    1. Cremers, Emily T. & Sen, Partha, 2008. "The transfer paradox in a one-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1995-2012, June.
    2. Bruce, Neil & Turnovsky, Stephen J., 2013. "Social security, growth, and welfare in overlapping generations economies with or without annuities," Journal of Public Economics, Elsevier, vol. 101(C), pages 12-24.
    3. Robert Holzmann & Joseph E. Stiglitz, 2001. "New Ideas about Old Age Security : Toward Sustainable Pension Systems in the 21st Century," World Bank Publications - Books, The World Bank Group, number 13857, December.
    4. Mitsuyoshi Yanagihara, 1998. "Public goods and the transfer paradox in an overlapping generations model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(2), pages 175-205.
    5. Mitsuyoshi Yanagihara, 2006. "The strong transfer paradox in an overlapping generations framework," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-8.
    6. Yano, Makoto, 1983. "Welfare aspects of the transfer problem," Journal of International Economics, Elsevier, vol. 15(3-4), pages 277-289, November.
    7. Giam Cipriani, 2014. "Population aging and PAYG pensions in the OLG model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(1), pages 251-256, January.
    8. repec:ebl:ecbull:v:6:y:2006:i:3:p:1-8 is not listed on IDEAS
    9. Luciano Fanti & Luca Gori, 2012. "Fertility and PAYG pensions in the overlapping generations model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 955-961, July.
    10. Mark A. Roberts, 2003. "Can Pay-as-You-Go Pensions Raise the Capital Stock?," Manchester School, University of Manchester, vol. 71(Supplemen), pages 1-20, September.
    11. Haaparanta, Pertti, 1989. "The intertemporal effects of international transfers," Journal of International Economics, Elsevier, vol. 26(3-4), pages 371-382, May.
    12. Kaganovich, Michael & Zilcha, Itzhak, 2012. "Pay-as-you-go or funded social security? A general equilibrium comparison," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 455-467.
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    Citations

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    Cited by:

    1. Hu, Weizhen, 2019. "Policy effects on transitional welfare in an overlapping generations model: A pay-as-you-go pension reconsidered," Economic Modelling, Elsevier, vol. 81(C), pages 40-48.
    2. Kojun Hamada & Akihiko Kaneko & Mitsuyoshi Yanagihara, 2024. "Impact of PAYG pensions on country welfare through capital accumulation," International Economics and Economic Policy, Springer, vol. 21(1), pages 207-226, February.

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    More about this item

    Keywords

    ay-as-you-go pension; Transfer paradox; Overlapping generations model;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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