Inequality in an OLG Economy with Heterogeneous Cohorts and Pension Systems

Marcin Waniek, Krzysztof Makarski, Joanna Tyrowicz and Marcin Bielecki
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Marcin Waniek: University of Warsaw

No 958, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we analyze the consumption and wealth inequality in an OLG model with obligatory pension systems. We model both policy relevant pension systems (a defined benefit system -- DB -- and a transition from a DB to a defined contribution system, DC). Our framework features within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We introduce two widely used policy instruments: a contribution cap and a minimum pension. We show four main results. First, longevity increases substantially aggregate consumption inequality and wealth inequality alike in both pension systems. Second, the effect of a pension system reform works to reinforce the consumption inequality and reduce the wealth inequality. Third, the contribution cap has negligible effect on inequality, but the role for minimum pension benefit guarantee is more pronounced. In fact, the reduction in inequality due to minimum pension benefit guarantee cuts by half the increase of inequality due to the pension system reform and this reduction is achieved with virtually no effect on capital accumulation. Fourth the minimum pension benefit guarantee addresses mostly the inequality which stem from differentiated endowments and not those that stem from differentiated preferences.

Date: 2017
New Economics Papers: this item is included in nep-age and nep-dge
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2018)
Journal Article: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2018)
Working Paper: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2018)
Working Paper: Inequality in an OLG Economy with Heterogeneous Cohorts and Pension Systems (2018)
Working Paper: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2017)
Working Paper: Inequalities in an OLG economy with heterogeneity within cohorts and pension systems (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:958

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