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Can and Should a Pay-As-You-Go Pension System Mimic a Funded System?

Author

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  • Hassler, John

    (Institute for International Economic Studies)

  • Lindbeck, Assar

    () (The Research Institute of Industrial Economics)

Abstract

This paper considers the possibility of letting a pay-go pension system mimic a fully funded pension system. Generically, it turns out to be impossible to make a less than fully funded pension system actuarially fair on average. But a non-funded pay-go pension system can provide an actuarially fair implicit return on the margin, which increases economic efficiency. The benefits of this fall entirely on current pensioners as a windfall gain unless compensating transfers are implemented. Such a system can be thought of as a pay-go system that mimics a fully funded pension system in combination with lump transfers to current pensioners from current and future workers.

Suggested Citation

  • Hassler, John & Lindbeck, Assar, 1998. "Can and Should a Pay-As-You-Go Pension System Mimic a Funded System?," Working Paper Series 499, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0499
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    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. 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.
    4. Smith, Alasdair, 1982. "Intergenerational transfers as social insurance," Journal of Public Economics, Elsevier, vol. 19(1), pages 97-106, October.
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    More about this item

    Keywords

    Pension systems; Pay-as-you-go; Actuarial; Funding;
    All these keywords.

    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

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