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Intergenerational Risk Sharing and Fiscal Policy

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  • Henning Bohn

Abstract

The paper derives conditions for ex ante efficient intergenerational risk sharing in overlapping generations models. I show how the efficiency of a fiscal policy can be evaluated without distributional judgments, I derive efficiency conditions, and then examine specific models. For models with CRRA preferences, laissez-faire allocations are found inefficient in the direction of imposing not enough productivity risk on retirees and too much risk on future generations. Governments commonly issue safe debt and promise safe public pensions, which protects retirees and shifts more risk onto future generations. This is inefficient, except under one condition: if preferences display age-increasing risk aversion. Thus governments seem to treat future generations of workers as if they are more risk tolerant than retirees

Suggested Citation

  • Henning Bohn, 2004. "Intergenerational Risk Sharing and Fiscal Policy," 2004 Meeting Papers 22, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:22
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy Risk Sharing;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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