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Coordination of Pension Systems When Technologies are Different

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  • Igor Fedotenkov

Abstract

This article presents a simple condition for optimal coordination of social security policies in the union of two open economies employing different production functions and within which capital and labour are fully mobile. We find that if both countries run fully funded pension schemes, the allocation of mobile production factors may not be optimal when the countries have different technologies. To remove this distortion, at least one country must run a pay-as-you-go pension scheme. Policy coordination which takes technological differences into account allows for the removal of static inefficiencies, maximizing the welfare of the agents in the steady state. (JEL codes: F22, F42, H55)

Suggested Citation

  • Igor Fedotenkov, 2014. "Coordination of Pension Systems When Technologies are Different," CESifo Economic Studies, CESifo, vol. 60(1), pages 246-256.
  • Handle: RePEc:oup:cesifo:v:60:y:2014:i:1:p:246-256.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifu004
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    References listed on IDEAS

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    1. Marko Kothenbürger & Panu Poutvaara, 2006. "Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?," Economica, London School of Economics and Political Science, vol. 73(290), pages 299-319, May.
    2. Poutvaara, Panu, 2007. "Social security incentives, human capital investment and mobility of labor," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1299-1325, August.
    3. Homburg, Stefan, 1990. "The Efficiency of Unfunded Pension Schemes," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 640-647.
    4. Igor Fedotenkov & Lex Meijdam, 2014. "Pension reform with migration and mobile capital: is a Pareto improvement possible?," International Economics and Economic Policy, Springer, vol. 11(3), pages 431-450, September.
    5. Gerking, Shelby D. & Mutti, John H., 1983. "Factor rewards and the international migration of unskilled labor: A model with capital mobility," Journal of International Economics, Elsevier, vol. 14(3-4), pages 367-380, May.
    6. Breyer, Friedrich & Kolmar, Martin, 2002. "Are national pension systems efficient if labor is (im)perfectly mobile?," Journal of Public Economics, Elsevier, vol. 83(3), pages 347-374, March.
    7. Niels Haldrup & Peter Lildholdt, "undated". "On the Robustness of Unit Root Tests in the Presence of Double Unit Roots," Economics Working Papers 2000-1, Department of Economics and Business Economics, Aarhus University.
    8. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-698, June.
    9. Stefan Homburg & Wolfram Richter, 1993. "Harmonizing public debt and public pension schemes in the European community," Journal of Economics, Springer, vol. 7(1), pages 51-63, December.
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    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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