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Social Security and Longevity

Author

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  • Torben Andersen

Abstract

Many countries face the problem of how to reform social security systems to cope with increasing life expectancy. This raises questions concerning both distribution and risk sharing across generations. These issues are addressed within an OLG model with stochastic life expectancy across generations and endogenous retirement decisions. The social optimum is shown to imply that retirement age should be proportional to longevity. Moreover, increasing longevity calls for pre-funding even if the utility of all generations is weighted equal to the objective discount rate. The social optimum cannot be decentralized due to a conflict between incentives and risk sharing. The implications of stylized social security systems for risk sharing and retirement incentives are analyzed.

Suggested Citation

  • Torben Andersen, 2005. "Social Security and Longevity," CESifo Working Paper Series 1577, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1577
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1577.pdf
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    References listed on IDEAS

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    1. Padilla, Emilio, 2002. "Intergenerational equity and sustainability," Ecological Economics, Elsevier, vol. 41(1), pages 69-83, April.
    2. Andersen, Torben M & Dogonowski, Robert R, 2002. "Social Insurance and the Public Budget," Economica, London School of Economics and Political Science, vol. 69(275), pages 415-431, August.
    3. Laurence Ball & N. Gregory Mankiw, 2007. "Intergenerational Risk Sharing in the Spirit of Arrow, Debreu, and Rawls, with Applications to Social Security Design," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 523-547, August.
    4. Talmain, Gabriel, 1998. "An analytical approximate solution to the problem of precautionary savings," Journal of Economic Dynamics and Control, Elsevier, vol. 23(1), pages 113-124, September.
    5. Gordon, Roger H. & Varian, Hal R., 1988. "Intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 37(2), pages 185-202, November.
    6. Woodward, Richard T., 1999. "Sustainability As Intergenerational Fairness," Faculty Paper Series 24014, Texas A&M University, Department of Agricultural Economics.
    7. Martin Werding, 2004. "Assessing Old-age Pension Benefits: The Rules Applied In Different Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(2), pages 55-63, 07.
    8. Henning Bohn, 2001. "Social Security and Demographic Uncertainty: The Risk-Sharing Properties of Alternative Policies," NBER Chapters,in: Risk Aspects of Investment-Based Social Security Reform, pages 203-246 National Bureau of Economic Research, Inc.
    9. Auerbach, Alan J. & Hassett, Kevin, 2007. "Optimal long-run fiscal policy: Constraints, preferences and the resolution of uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1451-1472, May.
    10. Auerbach, Alan J & Hassett, Kevin A, 2002. "Fiscal Policy and Uncertainty," International Finance, Wiley Blackwell, vol. 5(2), pages 229-249, Summer.
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    Cited by:

    1. R. Beetsma & A. L. Bovenberg, 2006. "Pension systems, intergenerational risk sharing and inflation," European Economy - Economic Papers 2008 - 2015 257, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Torben Andersen, 2006. "Increasing Longevity and Social Security Reforms," CESifo Working Paper Series 1789, CESifo Group Munich.
    3. Beetsma, Roel M.W.J. & Bovenberg, A. Lans & Romp, Ward E., 2011. "Funded pensions and intergenerational and international risk sharing in general equilibrium," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1516-1534.
    4. Lassila, Jukka & Valkonen, Tarmo, 2007. "Longevity Adjustment of Pension Benefits," Discussion Papers 1073, The Research Institute of the Finnish Economy.

    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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