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The Effects of Annuities, Bequests, and Aging in an Overlapping Generations Model of Endogenous Growth

  • Pecchenino, Rowena A
  • Pollard, Patricia S

The authors examine the effects of introducing actuarially fair annuity markets into an overlapping generations model of endogenous growth. The complete annuitisation of agents' wealth is not, in general, dynamically optimal; the degree of annuitisation that is dynamically optimal depends nonmonotonically on the expected length of retirement and on the pay-as-you-go social security tax rate. The government has an incentive to restrict the availability of actuarially fair annuities contracts and can often move the economy from a pay-as-you-go to a fully-funded social security system via voluntary contributions to a government sponsored, actuarially fair pension today accompanied by reductions in social security taxes tomorrow. Copyright 1997 by Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 107 (1997)
Issue (Month): 440 (January)
Pages: 26-46

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Handle: RePEc:ecj:econjl:v:107:y:1997:i:440:p:26-46
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  1. Townley, Peter G. C. & Boadway, Robin W., 1988. "Social security and the failure of annuity markets," Journal of Public Economics, Elsevier, vol. 35(1), pages 75-96, February.
  2. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-98, December.
  3. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
  4. E. Sheshinski & Y. Wiess, 1978. "Uncertainty and Optimal Social Security Systems," Working papers 225, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. David N. Weil, 1993. "Intergenerational Transfers, Aging, and Uncertainty," NBER Working Papers 4477, National Bureau of Economic Research, Inc.
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  8. Eichenbaum, Martin S & Peled, Dan, 1987. "Capital Accumulation and Annuities in an Adverse Selection Economy," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 334-54, April.
  9. Daniel S. Hamermesh & Paul L. Menchik, 1984. "Planned and Unplanned Bequests," NBER Working Papers 1496, National Bureau of Economic Research, Inc.
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  11. Zvi Eckstein & Martin S. Eichenbaum & Dan Peled, 1985. "The Distribution of Wealth and Welfare in the Presence of Incomplete Annuity Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 789-806.
  12. Eckstein, Zvi & Eichenbaum, Martin & Peled, Dan, 1985. "Uncertain lifetimes and the welfare enhancing properties of annuity markets and social security," Journal of Public Economics, Elsevier, vol. 26(3), pages 303-326, April.
  13. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  14. Larry E. Jones & Rodolfo E. Manuelli, 1990. "Finite Lifetimes and Growth," NBER Working Papers 3469, National Bureau of Economic Research, Inc.
  15. Robert G. King & Sergio Rebelo, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," NBER Working Papers 3338, National Bureau of Economic Research, Inc.
  16. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  17. Auerbach, A.J. & Kotlikoff, L.J. & Weil, D.N., 1992. "The Increasing Annuitization of the Elderly - Estimates and Implications for Intergenerational Transfers, Inequality and National Saving," Papers 6, Boston University - Department of Economics.
  18. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  19. 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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