Ignorance is bliss: Should a pension reform be announced?

Igor Fedotenkov

Economics Letters, 2016, vol. 147, issue C, 135-137

Abstract: This paper studies whether a pension reform, namely a switch from a pay-as-you-go (PAYG) to a more-funded scheme should be announced. We show that such an announcement increases savings, leading to a decline in interest rates. Smaller returns to savings lead to higher losses for the first transitional generation, which suffers from the reform the most. On the other hand, higher savings by the first transitional generation lead to faster capital accumulation, which benefits younger generations. We argue that if a government cares about the agents with the most to lose, it may more beneficial not to announce such a reform.

Keywords: Pension reform; Announcement; Savings; Interest rate (search for similar items in EconPapers)
JEL-codes: E13 E21 H55 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:147:y:2016:i:c:p:135-137

DOI: 10.1016/j.econlet.2016.08.029

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