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Ignorance is bliss: Should a pension reform be announced?

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  • Fedotenkov, Igor

Abstract

This paper studies whether a pension reform, namely a switch from a pay-as-you-go (PAYG) to a more-funded scheme should be announced. We show that such an announcement increases savings, leading to a decline in interest rates. Smaller returns to savings lead to higher losses for the first transitional generation, which suffers from the reform the most. On the other hand, higher savings by the first transitional generation lead to faster capital accumulation, which benefits younger generations. We argue that if a government cares about the agents with the most to lose, it may more beneficial not to announce such a reform.

Suggested Citation

  • Fedotenkov, Igor, 2016. "Ignorance is bliss: Should a pension reform be announced?," Economics Letters, Elsevier, vol. 147(C), pages 135-137.
    • Handle: RePEc:eee:ecolet:v:147:y:2016:i:c:p:135-137
    DOI: 10.1016/j.econlet.2016.08.029
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    Cited by:

    1. Hatcher, Michael, 2022. "Solving linear rational expectations models in the presence of structural change: Some extensions," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    2. Hatcher, Michael, 2019. "Should a pension reform be announced? A reply," Economics Letters, Elsevier, vol. 183(C), pages 1-1.

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    More about this item

    Keywords

    Pension reform; Announcement; Savings; Interest rate;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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