Welfare and Generational Equity in Sustainable Unfunded Pension Systems
We evaluate several actual and hypothetical sustainable PAYGO pension structures, including: (1) versions of the US Social Security system with annual adjustments of taxes or benefits to maintain fiscal balance; (2) Sweden's Notional Defined Contribution system and several variants developed to improve fiscal stability; and (3) the German system, which also includes annual adjustments to maintain fiscal balance. For each system, we present descriptive measures of uncertainty in representative outcomes for a typical generation and across generations. We then estimate expected utility for generations based on simplifying assumptions and incorporate these expected utility calculations in an overall social welfare measure. Using a horizontal equity index, we also compare the different systems' performance in terms of how neighboring generations are treated. While the actual Swedish system smoothes stochastic fluctuations more than any other and produces the highest degree of horizontal equity, it does so by accumulating a buffer stock of assets that alleviates the need for frequent adjustments. In terms of social welfare, this accumulation of assets leads to a lower average rate of return that more than offsets the benefits of risk reduction, leaving systems with more frequent adjustments that spread risks broadly among generations as those most preferred.
|Date of creation:||Jan 2009|
|Date of revision:|
|Publication status:||published as 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.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ronald Lee & Timothy Miller & Michael Anderson, 2004. "Stochastic Infinite Horizon Forecasts for Social Security and Related Studies," NBER Working Papers 10917, National Bureau of Economic Research, Inc.
- Valkonen, Tarmo, 2002. "Demographic Uncertainty and Taxes," Discussion Papers 816, The Research Institute of the Finnish Economy.
- James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
- Alexander Ludwig & Michael Reiter, 2010.
"Sharing Demographic Risk--Who Is Afraid of the Baby Bust?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 2(4), pages 83-118, November.
- Alexander Ludwig & Michael Reiter, 2008. "Sharing Demographic Risk – Who is Afraid of the Baby Bust?," CESifo Working Paper Series 2422, CESifo Group Munich.
- Ludwig, Alexander & Reiter, Michael, 2008. "Sharing Demographic Risk - Who is Afraid of the Baby Bust?," Sonderforschungsbereich 504 Publications 08-47, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Ludwig, Alexander & Reiter, Michael, 2009. "Sharing demographic risk : who is afraid of the baby bust?," Papers 08-47, Sonderforschungsbreich 504.
- Michael Reiter & Alexander Ludwig, 2009. "Sharing Demographic Risk – Who is Afraid of the Baby Bust?," 2009 Meeting Papers 389, Society for Economic Dynamics.
- Lee, Ronald D., 1993. "Modeling and forecasting the time series of US fertility: Age distribution, range, and ultimate level," International Journal of Forecasting, Elsevier, vol. 9(2), pages 187-202, August.
- Carter, Lawrence R. & Lee, Ronald D., 1992. "Modeling and forecasting US sex differentials in mortality," International Journal of Forecasting, Elsevier, vol. 8(3), pages 393-411, November.
- Ronald D. Lee & Michael W. Anderson & Shripad Tuljapurkar, 2003. "Stochastic Forecasts of the Social Security Trust Fund," Working Papers wp043, University of Michigan, Michigan Retirement Research Center.
- Ronald Lee & Shripad Tuljapurkar, 1998. "Stochastic Forecasts for Social Security," NBER Chapters, in: Frontiers in the Economics of Aging, pages 393-428 National Bureau of Economic Research, Inc.
- 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.
- Alan J. Auerbach & Ronald Lee, 2006.
"Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability,"
NBER Working Papers
12805, National Bureau of Economic Research, Inc.
- Alan J. Auerbach & Ronald Lee, 2009. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 43-68 National Bureau of Economic Research, Inc.
- Auerbach, Alan J. & Lee, Ronald D, 2007. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," Berkeley Olin Program in Law & Economics, Working Paper Series qt37k785qq, Berkeley Olin Program in Law & Economics.
- Feldstein, Martin & Liebman, Jeffrey B., 2002.
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324
- Jeffrey R. Brown & Jeffrey B. Liebman & David A. Wise, 2009. "Social Security Policy in a Changing Environment," NBER Books, National Bureau of Economic Research, Inc, number brow08-1.
- Axel Boersch-Supan & Christina B. Wilke, 2004. "The German Public Pension System: How it Was, How it Will Be," NBER Working Papers 10525, National Bureau of Economic Research, Inc.
- repec:dau:papers:123456789/6478 is not listed on IDEAS
- Florence Legros, 2003. "Notional Defined Contribution : a Comparison of the French and the German Point Systems," Working Papers 2003-14, CEPII research center.
- 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," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(02), pages 115-138, July.
- Alan J. Auerbach & Kevin A. Hassett, 1999.
"A New Measure of Horizontal Equity,"
NBER Working Papers
7035, National Bureau of Economic Research, Inc.
- Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14682. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.