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The Gains from Pension Reform

  • Lindbeck, Assar


    (The Research Institute of Industrial Economics)

  • Persson, Mats


    (Institute for International Economic Studies)

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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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 580.

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Length: 65 pages
Date of creation: 27 May 2002
Date of revision:
Handle: RePEc:hhs:iuiwop:0580
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