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Inequality in an OLG economy with heterogeneous cohorts and pension systems

Joanna Tyrowicz (), Krzysztof Makarsk and Marcin Bielecki ()
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Krzysztof Makarsk: Warsaw School of Economics

No 201808, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: We analyze the consumption and wealth inequality in an OLG model with mandatory pension systems. Our framework features within cohort heterogeneity of endowments and heterogeneity of preferences. We allow for population aging and gradual decline in TFP growth. We show four main results. First, increasing longevity translates to substantial increases in aggregate consumption inequality and wealth inequality. Second, a pension system reform from a defined benefit to a defined contribution works to reinforce consump- tion inequality and reduce wealth inequality. Third, minimum pension benefits are able to partially counteract an increase in inequality introduced by the defined contribution system, at a fiscal cost. Fourth the minimum pension benefit guarantee mostly addresses the sources of inequality which stem from differentiated endowments rather than those which stem from heterogeneous preferences.

JEL-codes: H55 E17 C60 C68 E21 D63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-gro, nep-mac, nep-pbe and nep-pub
Date: 2018-08
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Related works:
Journal Article: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2018) Downloads
Journal Article: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2018) Downloads
Working Paper: Inequality in an OLG Economy with Heterogeneous Cohorts and Pension Systems (2018) Downloads
Working Paper: Inequality in an OLG economy with heterogeneous cohorts and pension systems (2017) Downloads
Working Paper: Inequality in an OLG Economy with Heterogeneous Cohorts and Pension Systems (2017) Downloads
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