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The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest

Author

Listed:
  • Settergren, Ole
  • Mikula, Boguslaw D.

Abstract

The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.

Suggested Citation

  • Settergren, Ole & Mikula, Boguslaw D., 2005. "The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest," Discussion Paper 249, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:piedp1:249
    Note: 1 September 2003; 13 November 2004; 15 January 2005, This article will appear in the forthcoming World Bank publication: Pension Reform trough NDC:s Issues and Prospects for Non-Financial Defined Contribution Schemes, Robert Holzmann and Edward Palmer (eds.)
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/14227/1/pie_dp249.pdf
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    Citations

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    Cited by:

    1. Filipe Aleman Serrano, 2015. "Analysis of the Performance of the Management of the Automatic Balancing Mechanism," CEFAGE-UE Working Papers 2015_03, University of Evora, CEFAGE-UE (Portugal).
    2. Hagen, Johannes, 2013. "A History of the Swedish Pension System," Working Paper Series, Center for Fiscal Studies 2013:7, Uppsala University, Department of Economics.
    3. Schröder, Carsten, 2012. "Profitability of pension contributions – evidence from real-life employment biographies," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(03), pages 311-336, July.
    4. Metzger, Christoph, 2016. "Accounting of pay-as-you-go pension schemes using accrued-to-date liabilities: An example for Switzerland," FZG Discussion Papers 59, University of Freiburg, Research Center for Generational Contracts (FZG).
    5. Carlos Vidal-Meli· & Inmaculada DomÌnguez-Fabi·n & MarÌa del Carmen Boado-Penas, "undated". "Notional Defined Contribution Accounts (NDCs): Solvency and Risk; Application to the Case of Spain," Studies on the Spanish Economy 226, FEDEA.
    6. R. Melis & A. Trudda, 2014. "Mixed pension systems sustainability," Working Paper CRENoS 201413, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    7. Carlos Vidal-Meliá & María del Carmen Boado-Penas, 2013. "Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?," Applied Economics, Taylor & Francis Journals, vol. 45(10), pages 1303-1320, April.
    8. Auerbach, Alan J. & Lee, Ronald, 2011. "Welfare and generational equity in sustainable unfunded pension systems," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 16-27, February.
    9. Frédéric Gannon & Florence Legros & Vincent Touze, 2016. "Sustainability of pensions schemes : building a smooth automatic balance mechanism with an application to the US social security," Sciences Po publications 2016-16, Sciences Po.
    10. repec:bla:revinw:v:63:y:2017:i:1:p:70-94 is not listed on IDEAS
    11. Metzger, Christoph, 2016. "The German statutory pension scheme: Balance sheet, cross-sectional internal rates of return and implicit tax rates," FZG Discussion Papers 63, University of Freiburg, Research Center for Generational Contracts (FZG).
    12. Ronald Lee & Andrew Mason (ed.), 2011. "Population Aging and the Generational Economy," Books, Edward Elgar Publishing, number 13816.
    13. Alonso-García, J. & Devolder, P., 2016. "Optimal mix between pay-as-you-go and funding for DC pension schemes in an overlapping generations model," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 224-236.
    14. Frédéric Gannon & Florence Legros & Vincent Touzé, 2016. "Sustainability of pension schemes : building a smooth automatic balance mechanism with an application to tu US social security," Documents de Travail de l'OFCE 2016-16, Observatoire Francais des Conjonctures Economiques (OFCE).
    15. Róbert I Gál & Vera Gergely & Márton Medgyesi, 2011. "National Transfer Accounts in Hungary: contribution asset and returns in a pay-as-you-go pension," Chapters,in: Population Aging and the Generational Economy, chapter 32 Edward Elgar Publishing.

    More about this item

    Keywords

    Social Security; Public Pensions; Internal rate of return; Accounting;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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