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

Listed author(s):
  • van Praag, Bernard M. S.


    (University of Amsterdam)

  • Cardoso, Pedro

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

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 249.

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Length: 38 pages
Date of creation: Jan 2001
Handle: RePEc:iza:izadps:dp249
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