A Worker's Backpack as an alternative to PAYG pension systems

Julián Díaz-Saavedra, Joao Brogueira de Sousa and Ramon Marimon
Authors registered in the RePEc Author Service: Julián Díaz-Saavedra

No 1362, Working Papers from Barcelona School of Economics

Abstract: Facing an ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired, can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform -measured by average social welfare in the economy- existing pay-as-you go systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing the effect of its ageing transition under these different pension systems and by showing how a front-loaded reform-transition, from the PAYG to the BP system can be Pareto improving, while minimizing the cost of the reform.

Keywords: debt; taxation; social security reform; ageing (search for similar items in EconPapers)
JEL-codes: C68 H55 J26 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-age, nep-dge, nep-lma and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A Worker’s Backpack as an Alternative to PAYG Pension Systems (2023)
Working Paper: A Worker’s Backpack as an alternative to PAYG pension systems (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1362

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