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The Economics of Pensions. Remarks on Growth, Distribution and Class Conflict

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  • Codrina Rada

Abstract

This paper compares fully-funded (FF) and pay-as-you-go (paygo) pension plans in a Keynesian framework for an economy with overlapping generations and excess capacity. The model addresses both short/medium run equilibria and steady-states. Income distribution and class conflict, two crucial aspects of the political economy of pensions, become multidimensional. In a fully-funded economy class conflict between capitalists and labor gets diffused in the short-run by retirees' own interest to maintain a high profit share. In the long-run capitalists recognize that they can control their (net) share of profits by controlling employment and therefore the number of future retirees through capital accumulation. An extension of the model can show that fiscal policy is not always helpful in a fully-funded economy. A pay-as-you-go economy maintains a closer resemblance to the classical story of class conflict over income distribution. This is because workers and retirees have their interests aligned with the wage share. In this case fiscal policy through spending can be effective without creating a debt problem.

Suggested Citation

  • Codrina Rada, 2012. "The Economics of Pensions. Remarks on Growth, Distribution and Class Conflict," Working Paper Series, Department of Economics, University of Utah 2012_02, University of Utah, Department of Economics.
  • Handle: RePEc:uta:papers:2012_02
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    File URL: http://economics.utah.edu/research/publications/2012_02.pdf
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    References listed on IDEAS

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    7. Sergio Cesaratto, 2007. "Are PAYG and FF Pension Schemes Equivalent Systems? Macroeconomic Considerations in the Light of Alternative Economic Theories," Review of Political Economy, Taylor & Francis Journals, vol. 19(4), pages 449-473.
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    More about this item

    Keywords

    social security; fully-funded; Keynesian OLG JEL Classification: E24; E12; G23; H55;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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