Intergenerational Risk Sharing and Fiscal Policy

Henning Bohn ()

No 22, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: The paper derives conditions for ex ante efficient intergenerational risk sharing in overlapping generations models. I show how the efficiency of a fiscal policy can be evaluated without distributional judgments, I derive efficiency conditions, and then examine specific models. For models with CRRA preferences, laissez-faire allocations are found inefficient in the direction of imposing not enough productivity risk on retirees and too much risk on future generations. Governments commonly issue safe debt and promise safe public pensions, which protects retirees and shifts more risk onto future generations. This is inefficient, except under one condition: if preferences display age-increasing risk aversion. Thus governments seem to treat future generations of workers as if they are more risk tolerant than retirees

Keywords: Fiscal; Policy; Risk; Sharing (search for similar items in EconPapers)
JEL-codes: H55 H60 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2004
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed004:22

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