On Sustainable Pay-as-You-Go Contribution Rules

Gabrielle Demange ()

Journal of Public Economic Theory, 2009, vol. 11, issue 4, pages 493-527

Abstract: An unfunded social security system faces the major risk, sometimes referred to as "political risk," that future generations do not agree to contribute as much as expected. In order to account properly for this risk, the paper considers a political process in which the support to the system is asked from each new born generation. The analysis is conducted in an overlapping generations economy that is subject to macroeconomic shocks. As a consequence, the political support varies with the evolution of the economy. The impact of various factors-intragenerational redistribution, risk aversion, financial markets, governmental debt-on the political sustainability of a pay-as-you-go system is discussed. Copyright © 2009 Wiley Periodicals, Inc..

Date: 2009
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