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Welfare and generational equity in sustainable unfunded pension systems

Alan Auerbach and Ronald Lee

Journal of Public Economics, 2011, vol. 95, issue 1, 16-27

Abstract: Using stochastic simulations we analyze how public pension structures spread the risks arising from demographic and economic shocks across generations. We consider several actual and hypothetical sustainable PAYGO pension structures, including: (1) versions of the US Social Security system with annual adjustments of taxes or benefits to maintain fiscal balance; (2) Sweden's Notional Defined Contribution system and several variants developed to improve fiscal stability; and (3) the German system, which also includes annual adjustments to maintain fiscal balance. For each system, we present descriptive measures of uncertainty in representative outcomes for a typical generation and across generations. We then estimate expected utility for generations based on simplifying assumptions and incorporate these expected utility calculations in an overall social welfare measure. Using a horizontal equity index, we also compare the different systems' performance in terms of how neighboring generations are treated.

Keywords: Pensions; PAYGO; Social security (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (42)

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Journal Article: Welfare and generational equity in sustainable unfunded pension systems (2011) Downloads
Working Paper: Welfare and Generational Equity in Sustainable Unfunded Pension Systems (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:95:y:2011:i:1:p:16-27

DOI: 10.1016/j.jpubeco.2010.09.008

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