The Rate of Return of Pay-As-You-Go Pension Systems: A More Exact Consumption-Loan Model of Interest

Settergren Ole and Mikula Boguslaw D.

No 249, Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: The article presents a method for calculating the cross-section internal rate of return on contributions to pension systems financed according to the pay-as-you-go principle. The method entails a procedure for valuing the contribution flow of pay-as-you-go financing, and identifies the complete set of factors that determine the cross-section internal rate of return. The procedure makes it possible to apply the algorithm of double-entry bookkeeping in analyzing and presenting the financial position and development of pay-as-you-go pension systems.

Keywords: Social Security; Public Pensions; Internal rate of return; Accounting (search for similar items in EconPapers)
JEL-codes: E62 E43 H55 J1 M41 (search for similar items in EconPapers)
Date: 2005-01
Note: 1 September 2003; 13 November 2004; 15 January 2005, This article will appear in the forthcoming World Bank publication: Pension Reform trough NDC:s Issues and Prospects for Non-Financial Defined Contribution Schemes, Robert Holzmann and Edward Palmer (eds.)
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