IDEAS home Printed from https://ideas.repec.org/p/hhs/iuiwop/0493.html
   My bibliography  Save this paper

Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems

Author

Listed:
  • Hassler, John

    () (The Institute for International Economic Studies)

  • Lindbeck, Assar

    () (Th Institute for International Economic Studies and The Research Institute of Industrial Economics)

Abstract

In an analysis of the risk-sharing properties of different types of pension systems, we show that only a fixed-fee pay-as-you go (PAYG) pension systems can provide intergenerational risk sharing for living individuals. Under some circumstances, however, other PAYG pension systems can enhance the expected welfare of all generations by reducing intergenerational income variability. We derive conditions for this to occur. We also analyze the stability of actuarially fair PAYG pension systems. It is shown that if an actuarially fair pension with a non-balanced budget system is dynamically stable, its accumulated surpluses will converge to the same fund as in a fully funded system. We also show that the welfare loss due to labor market distortions will, surprisingly, increase if the implicit marginal return in a compulsory system is raised above the average return.

Suggested Citation

  • Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Working Paper Series 493, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0493
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/iuiwop/papers/iuiwop0493.pdf.zip
    Download Restriction: no
    File URL: http://swopec.hhs.se/iuiwop/papers/iuiwop0493.pdf
    Download Restriction: no
    File URL: http://swopec.hhs.se/iuiwop/papers/iuiwop0493.ps.zip
    Download Restriction: no
    File URL: http://swopec.hhs.se/iuiwop/papers/iuiwop0493.ps
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, vol. 86(2), pages 1-14, May.
    2. Hassler, John & Lindbeck, Assar, 1997. "Optimal actuarial fairness in pension systems: A note," Economics Letters, Elsevier, vol. 55(2), pages 251-255, August.
    3. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    4. Enders, Walter & Lapan, Harvey E, 1982. "Social Security Taxation and Intergenerational Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 647-658, October.
    5. Blanchard Olivier & Weil Philippe, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-23, November.
    6. 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 467-467.
    7. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    8. Gordon, Roger H. & Varian, Hal R., 1988. "Intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 37(2), pages 185-202, November.
    9. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October.
    10. Zilcha, Itzhak, 1991. "Characterizing efficiency in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 55(1), pages 1-16, October.
    11. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, vol. 90(2), pages 95-99, May.
    2. Matsen, Egil & Thogersen, Oystein, 2004. "Designing social security - a portfolio choice approach," European Economic Review, Elsevier, vol. 48(4), pages 883-904, August.
    3. Roel M. W. J. Beetsma & Ward E. Romp & Siert J. Vos, 2013. "Intergenerational Risk Sharing, Pensions, and Endogenous Labour Supply in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(1), pages 141-154, January.
    4. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1335-1357, July.
    5. Ottilia Rouguet & Pierre Villa, 2000. "Le passage des retraites de la répartition à la capitalisation obligatoire : des simulations à l'aide s'une maquette calibrée," Working Papers 2000-02, CEPII research center.
    6. Assar Lindbeck, 2002. "Pensions and Contemporary Socioeconomic Change," NBER Chapters,in: Social Security Pension Reform in Europe, pages 19-48 National Bureau of Economic Research, Inc.
    7. Pierre Villa, 2004. "Typologie et équivalence des systèmes de retraites," Working Papers 2004-09, CEPII research center.
    8. Jovan Zamac, 2005. "Pension Design when Fertility Fluctuates: The Role of Capital Mobility and Education Financing," CESifo Working Paper Series 1569, CESifo Group Munich.
    9. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
    10. Roel Beetsma & Ward Romp, 2013. "Participation Constraints in Pension Systems," Tinbergen Institute Discussion Papers 13-149/VI, Tinbergen Institute.
    11. Zamac , Jovan, 2005. "Winners and Losers from a Demographic Shock under Different Intergenerational Transfer Schemes," Working Paper Series 2005:13, Uppsala University, Department of Economics.
    12. Hans-Werner Sinn, 1998. "The Pay-as-you-go Pension System as a Fertility Insurance and Enforcement Device," CESifo Working Paper Series 154, CESifo Group Munich.
    13. Beetsma, Roel M.W.J. & Romp, Ward E. & Vos, Siert J., 2012. "Voluntary participation and intergenerational risk sharing in a funded pension system," European Economic Review, Elsevier, vol. 56(6), pages 1310-1324.
    14. Lindbeck, A., 1998. "Swedish Lessons for Post-Socialist Countries," Papers 645, Stockholm - International Economic Studies.
    15. Knell, Markus, 2010. "How automatic adjustment factors affect the internal rate of return of PAYG pension systems," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(01), pages 1-23, January.
    16. Ennio Bilancini & Massimo D'Antoni, 2008. "Pensions and Intergenerational Risk-Sharing When Relative Consumption Matters," Department of Economics University of Siena 541, Department of Economics, University of Siena.
    17. Persson, Mats, 2000. "Five Fallacies in the Social Security Debate," Seminar Papers 686, Stockholm University, Institute for International Economic Studies.
    18. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
    19. 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.
    20. Zamac, Jovan, 2007. "Pension design when fertility fluctuates: The role of education and capital mobility," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 619-639, April.
    21. Markus Knell, 2005. "On the Design of Sustainable and Fair PAYG Pension Systems When Cohort Sizes Change," Working Papers 95, Oesterreichische Nationalbank (Austrian Central Bank).
    22. Roel M. W. J. Beetsma & A. Lans Bovenberg, 2009. "Pensions and Intergenerational Risk-sharing in General Equilibrium," Economica, London School of Economics and Political Science, vol. 76(302), pages 364-386, April.
    23. Eduardo Siandra, 1998. "Sistemas de pensiones, sus reformas y los mercados de capitales," Documentos de Trabajo (working papers) 0299, Department of Economics - dECON.
    24. Lindbeck, A. & Wikstrom, S., 1999. "The ICT Revoluation in Consumer Product Markets," Papers 670, Stockholm - International Economic Studies.

    More about this item

    Keywords

    Pension systems; Pay-as-you-go; Intergenerational;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:0493. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson). General contact details of provider: http://edirc.repec.org/data/iuiiise.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.