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The Intergenerational Welfare State and the Rise and Fall of Pay‐as‐you‐go Pensions

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  • Torben M. Andersen
  • Joydeep Bhattacharya

Abstract

This paper develops a theory of the two-armed intergenerational welfare state, consistent with key features of modern welfare arrangements, and uses it to rationalise the rise and fall in generosity of pay-as-you-go pensions solely on efficiency grounds. By using the education arm, a dynamically-efficient welfare state is shown to improve upon long-run laissez faire even when market failures are absent. To release these downstream welfare gains without hurting any transitional generation, help from the pension arm is needed. In the presence of an intergenerational education externality, pensions initially rise in generosity but can be replaced by fully funded pensions eventually.
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Suggested Citation

  • Torben M. Andersen & Joydeep Bhattacharya, 2017. "The Intergenerational Welfare State and the Rise and Fall of Pay‐as‐you‐go Pensions," Economic Journal, Royal Economic Society, vol. 127(602), pages 896-923, June.
    • Handle: RePEc:wly:econjl:v:127:y:2017:i:602:p:896-923
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    File URL: http://hdl.handle.net/10.1111/ecoj.2017.127.issue-602
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    Cited by:

    1. Uchida, Yuki & Ono, Tetsuo, 2022. "Politics of Public Education and Pension Reform with Endogenous Fertility," MPRA Paper 112748, University Library of Munich, Germany.
    2. Andersen, Torben M. & Bhattacharya, Joydeep & Gestsson, Marias H., 2021. "Pareto-improving transition to fully funded pensions under myopia," Journal of Demographic Economics, Cambridge University Press, vol. 87(2), pages 169-212, June.
    3. Torben Andersen & Joydeep Bhattacharya, 2020. "Intergenerational Debt Dynamics Without Tears," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 192-219, January.
    4. Bishnu, Monisankar & Garg, Shresth & Garg, Tishara & Ray, Tridip, 2023. "Intergenerational transfers: Public education and pensions with endogenous fertility," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).
    5. Torben M. Andersen & Joydeep Bhattacharya & Qing Liu, 2023. "Can optimal unfunded public pensions co-exist with voluntary private retirement savings?," Indian Economic Review, Springer, vol. 58(1), pages 237-251, July.
    6. Torben M. Andersen & Joydeep Bhattacharya & Qing Liu, 2021. "Reference‐dependent preferences, time inconsistency, and pay‐as‐you‐go pensions," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1008-1030, July.
    7. Andersen, Torben M., 2019. "Intergenerational conflict and public sector size and structure: A rationale for debt limits?," European Journal of Political Economy, Elsevier, vol. 57(C), pages 70-88.
    8. Bishnu, Monisankar & Garg, Shresth & Garg, Tishara & Ray, Tridip, 2021. "Optimal intergenerational transfers: Public education and pensions," Journal of Public Economics, Elsevier, vol. 198(C).
    9. Amol Amol & Monisankar Bishnu & Tridip Ray, 2023. "Pension, possible phaseout, and endogenous fertility in general equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 376-406, April.
    10. Frankovic, Ivan & Kuhn, Michael, 2018. "Health insurance, endogenous medical progress, and health expenditure growth," ECON WPS - Working Papers in Economic Theory and Policy 01/2018, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
    11. Moiseyev, K., 2024. "Modeling the transition from pay-as-you-go to a fully funded pension system in Russia," Journal of the New Economic Association, New Economic Association, vol. 64(3), pages 30-52.
    12. Frankovic, Ivan & Kuhn, Michael, 2023. "Health insurance, endogenous medical progress, health expenditure growth, and welfare," Journal of Health Economics, Elsevier, vol. 87(C).
    13. Schulz, Karl & Tsyvinski, Aleh & Werquin, Nicolas, 2023. "Generalized compensation principle," Theoretical Economics, Econometric Society, vol. 18(4), November.
    14. Andersen, Torben M. & Bhattacharya, Joydeep & Liu, Qing, 2020. "Reference-dependent preferences, time inconsistency, and unfunded pensions," ISU General Staff Papers 202004170700001102, Iowa State University, Department of Economics.
    15. SUMIZAWA, Kazui, 2025. "Linking Educational Loan Subsidies to Pay-as-you-go Pension Reforms," MPRA Paper 124645, University Library of Munich, Germany.
    16. Cipriani, Giam Pietro & Fioroni, Tamara, 2024. "Human capital and pensions with endogenous fertility and retirement," Macroeconomic Dynamics, Cambridge University Press, vol. 28(2), pages 478-494, March.

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