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In the search for the optimal path to establish a funded pension system

Author

Listed:
  • Marcin Bielecki

    () (Faculty of Economic Sciences, University of Warsaw)

  • Krzysztof Makarski

    () (National Bank of Poland; Warsaw School of Economics)

  • Joanna Tyrowicz

    () (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

  • Marcin Waniek

    () (University of Warsaw)

Abstract

We propose a politically feasible instrument for a nearly optimal transition from a pay-as-you-go to a funded scheme in a defined contribution pension system. It consists of compensating the transition generations in the form of pension benefits indexation more generous than would have prevailed in a clean DC system. Thus, this instrument allows to smoothen the welfare costs of transition over future generations via some small implicit debt. Our instrument proves robust to a number of parametric and modeling choices.

Suggested Citation

  • Marcin Bielecki & Krzysztof Makarski & Joanna Tyrowicz & Marcin Waniek, 2015. "In the search for the optimal path to establish a funded pension system," Working Papers 2015-22, Faculty of Economic Sciences, University of Warsaw.
  • Handle: RePEc:war:wpaper:2015-22
    as

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    File URL: http://www.wne.uw.edu.pl/index.php/download_file/1818/
    File Function: First version, 2015
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    References listed on IDEAS

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    2. Pascal Belan & Pierre Pestieau, 1999. "Privatizing Social Security: A Critical Assessment," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 24(1), pages 114-130, January.
    3. Laurence J. Kotlikoff, 1996. "Privatization of Social Security: How It Works and Why It Matters," NBER Chapters,in: Tax Policy and the Economy, Volume 10, pages 1-32 National Bureau of Economic Research, Inc.
    4. 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 467-467.
    5. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1677-1719.
    6. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, vol. 96(3), pages 737-755, June.
    7. Jan Hagemejer & Krzysztof Makarski & Joanna Tyrowicz, 2013. "Efficiency of the pension reform: the welfare effects of various fiscal closures," Working Papers 2013-23, Faculty of Economic Sciences, University of Warsaw.
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    11. Douglas H. Joines, 2005. "Pareto-Improving Social Security Reform," 2005 Meeting Papers 396, Society for Economic Dynamics.
    12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. repec:eee:hapoch:v1_713 is not listed on IDEAS
    2. Wang, Hong & Koo, Bonsoo & O'Hare, Colin, 2016. "Retirement planning in the light of changing demographics," Economic Modelling, Elsevier, vol. 52(PB), pages 749-763.

    More about this item

    Keywords

    defined contribution; pay-as-you-go; pre-funded; pension system;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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