Pension Reform and Economic Performance under Imperfect Capital Markets

Alessandra Casarico

Economic Journal, 1998, vol. 108, issue 447, 344-62

Abstract: The author considers an overlapping generations model where heterogeneous agents take decisions on consumption and investment in education under the assumption of imperfect capital markets. She studies how the introduction of a pay-as-you-go and of a fully funded pension scheme affects output and lifetime opportunities and then analyzes the impact of a pension reform. The standard neutrality result for fully funded pension schemes does not hold in this framework. The author establishes the conditions under which a fully funded scheme is associated with a higher investment in human capital. She shows that the transition path may involve poverty traps.

Date: 1998
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