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The Welfare Effects Of Pay-As-You-Go Retirement Programs: The Role Of Tax And Benefit Timing

  • ALAN D. VIARD

"It is well known that pay-as-you-go retirement programs reduce steady-state welfare and the capital stock in dynamically efficient overlapping generation (OLG) economies. The common two-period OLG model obscures, however, the relationship between the magnitude of these effects and the ages at which taxes are paid and benefits received. Program changes that shift taxes to older workers or benefits to younger retirees have effects similar to reductions in program size, yielding steady-state welfare gains and increases in capital accumulation while imposing transition costs on current generations. This analysis has policy implications for both tax and benefit timing". ("JEL "H55, E62) Copyright 2007 Western Economic Association International.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.2007.00038.x
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Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 25 (2007)
Issue (Month): 2 (04)
Pages: 282-292

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Handle: RePEc:bla:coecpo:v:25:y:2007:i:2:p:282-292
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  1. Abel, Andrew B, et al, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," Review of Economic Studies, Wiley Blackwell, vol. 56(1), pages 1-19, January.
  2. Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc.
  3. Hurst, Erik & Willen, Paul, 2007. "Social security and unsecured debt," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1273-1297, August.
  4. Laurence S. Seidman & Kenneth A. Lewis, 2003. "The Later You Pay, the Higher the k," Southern Economic Journal, Southern Economic Association, vol. 69(3), pages 560-577, January.
  5. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
  6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  7. Feldstein, Martin, 1990. "Imperfect annuity markets, unintended bequests, and the optimal age structure of social security benefits," Journal of Public Economics, Elsevier, vol. 41(1), pages 31-43, February.
  8. Hubbard, R Glenn & Judd, Kenneth L, 1987. "Social Security and Individual Welfare: Precautionary Saving, Borrowing Constraints, and the Payroll Tax," American Economic Review, American Economic Association, vol. 77(4), pages 630-46, September.
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