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"Should I Pay for You or for Myself?" The Optimal Level and Composition of Retirement Benefit Systems

Bernard van Praag () and Pedro Cardoso
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Pedro Cardoso: European Commission, Directorate Employment, Social Affairs and Inclusion

No 249, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Feldstein [1985] posed the questions of what would be the optimal level of retirement benefit, and what would be the optimal mix between the pay-as-you-go system and the funded pension system under the assumption of an exogenous interest rate. We reconsider the problem with the addition of a flexible production function and, consequently, an endogenous interest rate. Moreover, we allow the contributions rate è to be negative as well. In the case of a negative è , the retired subsidize the workers out of their saved capital. This case turns out to be the optimal one in situations of low population growth.

Keywords: welfare systems; retirement benefits; funded pensions; pay-as-you-go systems; Social security (search for similar items in EconPapers)
JEL-codes: D91 E21 H55 J14 J26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pol
Date: 2001-01
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