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How Sustainable Are Old-age Pensions in a Shrinking Population with Endogenous Labour Supply?

  • Pedro Cardoso
  • Bernard M.S. van Praag

In this paper we model an OLG-economy where labour supply is endogenously determined and where we assume that there are two pension systems, namely, a pay-as-you-go system and a funded system. The main question is whether there is an equilibrium involving an old-age pensions system, partly financed by PAYG and partly by a capital reserve system, and what will be the size and the composition of the pension income. We also look at the consequences of increasing preference for leisure on the design of the pension system. We assume the population growth rate and the technological growth rate to be endogenous; they are assumed to be correlated with the labour supply. Negative population growth is admitted for by the model. The main conclusion is that there is in any economy an equilibrium, but that the numerical outcomes heavily depend on the attitude towards leisure and the capital production elasticity

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 861.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_861
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  1. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
  2. CASAMATTA, Georges & CREMER, Helmuth & PESTIEAU, Pierre, . "Voting on pensions with endogenous retirement age," CORE Discussion Papers RP -1754, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
  4. Miles, David, 1999. "Modelling the Impact of Demographic Change upon the Economy," Economic Journal, Royal Economic Society, vol. 109(452), pages 1-36, January.
  5. MICHEL, Philippe & PESTIEAU, Pierre, 1999. "Social security and early retirement in an overlapping-generations growth model," CORE Discussion Papers 1999051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Meijdam, A.C. & Verbon, H.A.A., 1996. "Aging and political decision making on public pensions," Other publications TiSEM 30434a77-0d7a-4d11-8fbd-3, Tilburg University, School of Economics and Management.
  7. Breyer, Friedrich, 1994. "The political economy of intergenerational redistribution," European Journal of Political Economy, Elsevier, vol. 10(1), pages 61-84, May.
  8. Friedrich Breyer & Klaus Stolte, 2000. "Demographic Change, Endogenous Labor Supply and the Political Feasibility of Pension Reform," Discussion Papers of DIW Berlin 202, DIW Berlin, German Institute for Economic Research.
  9. Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-44, October.
  10. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  11. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  12. Raffelhuschen, Bernd & Risa, Alf Erling, 1995. "Reforming social security in a small open economy," European Journal of Political Economy, Elsevier, vol. 11(3), pages 469-485, September.
  13. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
  14. Nishimura, K. & Zhang, J., 1990. "Pay-As-You-Go Public Pensions With Endogenous Fertility," Papers 202, Australian National University - Department of Economics.
  15. Cigno, Alessandro, 1993. "Intergenerational transfers without altruism : Family, market and state," European Journal of Political Economy, Elsevier, vol. 9(4), pages 505-518, November.
  16. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  17. Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
  18. Lettau, Michael K., 1997. "Compensation in part-time jobs versus full-time jobs What if the job is the same?," Economics Letters, Elsevier, vol. 56(1), pages 101-106, September.
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