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Old Age Consumption and Pension Policy in a Two-Tier Developing Economy


  • Philippe Michel

    (GREQAM, Université de la Méditerrannée and EUREQUA, Université de Paris I)

  • Oliver Paddison

    (United Nations Economic Commission for Africa (UNECA))

  • Pierre Pestieau

    (CREPP, Université de Liège, CORE, CEPR and Delta. CORE, University of Louvain, Belgium)


In a number of developing countries, an important part of the economy is informal both in terms of production and of social protection. In this paper we consider introducing a universal pension system in the formal sector. It is shown to have two main effects: first, it makes the formal sector more attractive to migration and second, it affects capital accumulation in a way that depends on the type of social security introduced, PAYG or funded, and its induced effect on private saving.

Suggested Citation

  • Philippe Michel & Oliver Paddison & Pierre Pestieau, 2003. "Old Age Consumption and Pension Policy in a Two-Tier Developing Economy," Finnish Economic Papers, Finnish Economic Association, vol. 16(1), pages 3-14, Spring.
  • Handle: RePEc:fep:journl:v:16:y:2003:i:1:p:3-14

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    References listed on IDEAS

    1. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-391, April.
    2. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 151-182, July.
    3. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October.
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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers


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