Pay-as-You-Go Public Pension Schemes Revisited: A Draft

Martin Werding ()

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 1999, vol. 218, issue 3+4, pages 491-511

Abstract: If considered within the context of an overlapping-generations framework, pay-as-you-go pension systems turn out to be funded by the human capital embodied in subsequent generations. The failure to actually model public old-age security on this idea may, to a large degree, explain the current crises of virtually all existing pay-as-you-go schemes. The paper sketches in some detail the basic features of a new pay-as-you-go mechanism which has been revised along these lines. Essentially, schemes of this type would be based on an explicit link between public retirement pensions and both private and public spending on human capital. The most important advantages of this solution are as follows: it neutralizes the demographic risks of providing for the elderly; it creates the right incentives to engage in old-age provision and human capital formation; and, last but not least, it conforms with rather complex notions of equity and social justice.

Keywords: public pensions; pay-as-you-go systems; human capital; pension reform (search for similar items in EconPapers)
JEL-codes: H55 J13 J14 J24 J26 (search for similar items in EconPapers)
Date: 1999
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Persistent link: http://EconPapers.repec.org/RePEc:jns:jbstat:v:218:y:1999:i:3-4:p:491-511

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