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The Gains from Pension Reform

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  • Lindbeck, Assar

    () (Institute for International Economic Studies, Stockholm University)

  • Persson, Mats

    () (Institute for International Economic Studies, Stockholm University)

Abstract

We characterize pension systems along three dimensions: 1) actuarial vs. non-actuarial, 2) funded vs. pay-as-you-go, 3) defined-contribution vs. defined-benefit. Increasing the degree of actuarial fairness, by strengthening the linkage between contributions and benefits, reduces labor market distortions and may increase welfare in a Pareto-efficiency sense. Increasing the degree of funding implies mainly a redistribution of income among generations, although a partial shift to funding also provides better risk-return combinations for individuals. Shifting from defined-benefit to defined-contribution schemes (with fixed contribution rates) shifts the income risk from workers and taxpayers to pensioners.
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Suggested Citation

  • Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Seminar Papers 712, Stockholm University, Institute for International Economic Studies.
    • Handle: RePEc:hhs:iiessp:0712
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    Keywords

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    JEL classification:

    • H00 - Public Economics - - General - - - General
    • J00 - Labor and Demographic Economics - - General - - - General

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