Can social security be welfare improving when there is demographic uncertainty?

This paper studies the welfare implications of a PAYG pension system in an overlapping generations (OLG) model with demographic uncertainty and incomplete markets. In the absence of public pensions, small cohorts tend to be favoured by the changes in relative prices implied by demographic shocks. PA...

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Veröffentlicht in:Journal of economic dynamics & control 2006-09, Vol.30 (9), p.1615-1646
Hauptverfasser: Sánchez-Marcos, Virginia, Sánchez-Martín, Alfonso R.
Format: Artikel
Sprache:eng
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Zusammenfassung:This paper studies the welfare implications of a PAYG pension system in an overlapping generations (OLG) model with demographic uncertainty and incomplete markets. In the absence of public pensions, small cohorts tend to be favoured by the changes in relative prices implied by demographic shocks. PAYG defined-benefit systems can help to share the financial risks created by this type of demographic uncertainty across generations. Our careful quantitative analysis test this possibility with unfavourable results: the overall welfare impact of the public pensions is negative, due to the prominence of the crowding-out effect over the insurance effect.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2005.09.017