Aggregate Implications Of Defined Benefit And Defined Contribution Systems

Francisco Gomes () and Alexander Michaelides

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: We use a general equilibrium life-cycle model with incomplete markets and heterogeneous agents to evaluate the macroeconomic and welfare implications of Defined Benefit (DB) versus Defined Contribution (DC) systems, and to investigate the effects of incremental reform within a particular system. Extensive calibrations illustrate the trade-off between effciency and redistribution that a tax-financed, DB social security system generates. We find that social welfare is maximized for small but positive levels of DB because of the redistributive value associated with these systems. On the other hand, steady-state within-DC system comparisons reveal that a zero DC tax rate maximizes social welfare.

New Economics Papers: this item is included in nep-lab
Date: 2004-02-25
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Working Paper: Aggregate Implications of Defined Benefit and Defined Contribution Systems (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:crr:crrwps:2003-16

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