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


"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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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. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
  2. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
  3. 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.
  4. Erik Hurst & Paul S. Willen, 2004. "Social Security and unsecured debt," Public Policy Discussion Paper 04-10, Federal Reserve Bank of Boston.
  5. 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.
  6. Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc.
  7. 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.
  8. 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.
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