Extending the Aaron Condition for Alternative Pay-as-You-Go Pension Systems
Welfare comparisons between funded and pay-as-you-go (PAYG) pension systems are often made using the Aaron condition. However, the Aaron condition as usually stated is not precise enough about the exact form of the PAYG pension system. PAYG pension systems can be either of the defined-benefit or defined-contribution variety. They can also differ with regard to intra-generational redistribution. For example, pension benefits can be flat or earnings related. Here, four alternative PAYG pension systems are considered. It is shown that each system generates its own Aaron condition. In addition, the standard Aaron condition assumes that the wage rate and labor participation rate does not vary across individuals and that the rate of population growth is constant and exogenous. These assumptions are also relaxed. Using US data covering the period 1933-2001, I then show that the results of comparisons between PAYG and funded systems depend critically on exactly which variety of PAYG system is being compared, and that PAYG systems are becoming less attractive over time as fertility rates decline.
|Date of creation:||Mar 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +61)-2- 9313- 6337
Web page: http://www.economics.unsw.edu.au/
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.:
- Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000.
"Transfers to Families with Children as a Principal-Agent Problem,"
CESifo Working Paper Series
351, CESifo Group Munich.
- Cigno, Alessandro & Luporini, Annalisa & Pettini, Anna, 2003. "Transfers to families with children as a principal-agent problem," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1165-1177, May.
- Alessandro Cigno & Annalisa Luporini & Anna Pettini, 2000. "Tranfers to families with children as a principal-agent problem," CHILD Working Papers wp02_00, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Martin Feldstein, 1982.
"The Optimal Level of Social Security Benefits,"
NBER Working Papers
0970, National Bureau of Economic Research, Inc.
- Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
- Blake, David, 2000. "Does It Matter What Type of Pension Scheme You Have?," Economic Journal, Royal Economic Society, vol. 110(461), pages F46-81, February.
- Martin Kolmar, 1997. "Intergenerational redistribution in a small open economy with endogenous fertility," Journal of Population Economics, Springer, vol. 10(3), pages 335-356.
When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2009-03. 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: (Gabriele Gratton)
If references are entirely missing, you can add them using this form.