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"Should I Pay for You or for Myself?" The Optimal Level and Composition of Retirement Benefit Systems

Author

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  • van Praag, Bernard M. S.

    () (University of Amsterdam)

  • Cardoso, Pedro

    (European Commission, Directorate Employment, Social Affairs and Inclusion)

Abstract

Feldstein [1985] posed the questions of what would be the optimal level of retirement benefit, and what would be the optimal mix between the pay-as-you-go system and the funded pension system under the assumption of an exogenous interest rate. We reconsider the problem with the addition of a flexible production function and, consequently, an endogenous interest rate. Moreover, we allow the contributions rate è to be negative as well. In the case of a negative è , the retired subsidize the workers out of their saved capital. This case turns out to be the optimal one in situations of low population growth.

Suggested Citation

  • van Praag, Bernard M. S. & Cardoso, Pedro, 2001. ""Should I Pay for You or for Myself?" The Optimal Level and Composition of Retirement Benefit Systems," IZA Discussion Papers 249, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp249
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    Keywords

    welfare systems; retirement benefits; funded pensions; pay-as-you-go systems; Social security;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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