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Inequality in an OLG Economy with Heterogeneous Cohorts and Pension Systems

Joanna Tyrowicz (), Krzysztof Makarski () and Marcin Bielecki ()

No 11621, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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 consumption 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.

Keywords: defined contribution; longevity; inequality; wealth; consumption; defined benefit (search for similar items in EconPapers)
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-dge and nep-mac
Date: 2018-06
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Published in: Journal of Economic Inequality, 2018, 16 (4), 583-606

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Related works:
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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