The effects of financing rules in pay-as-you-go pension systems on the life and the business cycle

Christian Scharrer

German Economic Review, 2021, vol. 22, issue 4, 489-511

Abstract: Empirically, revenues of public pension systems are more volatile than expenditures. Therefore, the question arises how the social security authority should buffer its revenues and adjust its contributions over the business cycle. This paper studies the corresponding effects on the life cycle of households and the business cycle in a large-scale overlapping generations model. In particular, the labor supply is endogenous and takes the intertemporal links between contributions and pension benefits into account. Sluggish adjustments of contribution rates that are implemented by adjusting a financial buffer stock both stabilize an economy and decrease the volatility of lifetime utilities of most workers and retirees, in contrast to sole adjustments of contribution rates. However, changes of consumption, capital income, or lump sum taxes, which aim to balance public pension budgets, improve the allocation of aggregate risk across cohorts for people up to an age of at least 71 years.

Keywords: Overlapping Generations; Pay-As-You-Go Pension Systems; Financing Rules; Business Cycle; Life Cycle; RBC-Model (search for similar items in EconPapers)
JEL-codes: E21 E30 H55 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1515/ger-2020-0037 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: The Effects of Financing Rules in Pay-As-You-Go Pension Systems on the Life and the Business Cycle (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:22:y:2021:i:4:p:489-511:n:2

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1515/ger-2020-0037

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().