The Design of Optimally Balanced Pay-as-you-go Social Security Systems

Leandro Lyra Braga Dognini

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Abstract: This paper bridges social security design and general equilibrium theory to conceive optimally balanced pay-as-you-go systems. The design is based on the backward calculation algorithm from Dognini (2025), which is used to find optimal monetary equilibria of prone-to-savings non-stationary overlapping generations economies with heterogeneous households. In particular, this algorithm makes the design applicable for reforming pay-as-you-go systems in countries undergoing demographic transitions. Due to households balanced budgets under equilibrium prices (i.e., Walras' law), these optimally balanced pay-as-you-go systems resemble the well-known notional accounts systems. The design is illustrated in a simplified framework using the past and forecast demographic and productivity dynamics of Brazil, China, India, Italy, and the United States from 1950 to 2070.

Date: 2026-04
New Economics Papers: this item is included in nep-age and nep-dge
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