Intergenerational risk sharing and fiscal policy

Henning Bohn

Journal of Monetary Economics, 2009, vol. 56, issue 6, 805-816

Abstract: Risk-sharing implications of alternative fiscal policies are compared in a stochastic production economy with overlapping generations. Ex ante efficiency is shown to be achievable with optimal transfers, regardless of distributional concerns. For CRRA preferences, stylized real-world policies (notably safe debt and safe pensions) are found inefficient in the direction of imposing not enough productivity risk on retirees and too much on future generations. Safe transfers can be rationalized as efficient if preferences display age-increasing risk aversion, such as habit formation. The ubiquity of safe transfers suggests that governments treat the young as more risk tolerant than older cohorts.

Keywords: Aggregate; risks; Optimal; risk; sharing; Intergenerational; transfers; Overlapping; generations; Social; security; Fiscal; policy (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (53)

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Working Paper: Intergenerational Risk Sharing and Fiscal Policy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:6:p:805-816

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