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Pay-as-You-Go Public Pension Schemes Revisited: A Draft

  • Martin Werding

    (Universität Passau)

If considered within the context of an overlapping-generations framework, pay-as-you-go pension systems turn out to be funded by the human capital embodied in subsequent generations. The failure to actually model public old-age security on this idea may, to a large degree, explain the current crises of virtually all existing pay-as-you-go schemes. The paper sketches in some detail the basic features of a new pay-as-you-go mechanism which has been revised along these lines. Essentially, schemes of this type would be based on an explicit link between public retirement pensions and both private and public spending on human capital. The most important advantages of this solution are as follows: it neutralizes the demographic risks of providing for the elderly; it creates the right incentives to engage in old-age provision and human capital formation; and, last but not least, it conforms with rather complex notions of equity and social justice.

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Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 218 (1999)
Issue (Month): 3+4 (March)
Pages: 491-511

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Handle: RePEc:jns:jbstat:v:218:y:1999:i:3-4:p:491-511
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