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Social security, income inequality and growth


In most industrial countries, public pension systems redistribute from workers to retired people, not from high-income to low-income earners. They are close actuarial fairness. However, they are not all equivalent. In particular, some pension benefits are linked to full lifetime average earnings, while others are only linked to partial earnings history. In the latter case, we then show in this article that an actuarially fair pay-as-you-go pension system can both reduce lifetime income inequality and enhance economic growth. We also shed light on the dilemma between inequality and economic growth in retirement systems: greater progressivity results in less lifetime inequlity but also less growth.

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Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 11 (2012)
Issue (Month): 01 (January)
Pages: 53-70

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Handle: RePEc:cup:jpenef:v:11:y:2012:i:01:p:53-70_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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