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Redistributive effects of different pension structures when longevity varies by socioeconomic status in a general equilibrium setting

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  • Sanchez-Romero, Miguel
  • Lee, Ron
  • Fürnkranz-Prskawetz, Alexia

Abstract

Differences in life expectancy between high and low socioeconomic groups are often large and have widened recently in many countries. Such longevity gaps affect the actuarial fairness and progressivity of public pension systems. However, behavioral responses to longevity and policy complicate analysis of possible reforms. Here we consider how some pension reforms would perform in a general equilibrium OLG setting with heterogeneous longevity and ability. We evaluate redistributive effects of three Notional Defined Contribution plans and three Defined Benefit plans, calibrated on the US case. Compared to a nonredistributive plan that accounts for differences in mortality, US Social Security reduces regressivity from longevity differences, but requires group-specific life tables to achieve progressivity. Moreover, without separate life tables, despite apparent accounting gains lower income groups would suffer welfare losses and higher income groups enjoy welfare gains through indirect effects of pension systems on labor supply.

Suggested Citation

  • Sanchez-Romero, Miguel & Lee, Ron & Fürnkranz-Prskawetz, Alexia, 2019. "Redistributive effects of different pension structures when longevity varies by socioeconomic status in a general equilibrium setting," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203628, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc19:203628
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    More about this item

    Keywords

    Human capital; Longevity; Inequality; Life cycle; Social Security;
    All these keywords.

    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
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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