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Redistributive Effects of Different Pension Systems When Longevity Varies by Socioeconomic Status

Miguel Sanchez-Romero (), Ronald Lee and Alexia Fürnkranz-Prskawetz

No 25944, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a general analytical framework to model the redistributive features of alternative pension systems when individuals face ex ante differences in mortality. Differences in life expectancy between high and low socioeconomic groups are often large and have widened recently in many countries. Such longevity gaps affect the actuarial fairness and progressivity of public pension systems. However, behavioral responses to longevity and policy complicate analysis of possible reforms. Here we consider how various pension systems would perform in a general equilibrium OLG setting with heterogeneous longevity and ability. We evaluate redistributive effects of three Notional Defined Contribution plans and three Defined Benefit plans, calibrated on the US case. Compared to a benchmark non-redistributive plan that accounts for differences in mortality, US Social Security reduces regressivity from longevity differences, but would require group-specific life tables to achieve progressivity. Moreover, without separate life tables, despite apparent accounting gains, lower income groups would suffer welfare losses and higher income groups would enjoy welfare gains through indirect effects of pension systems on labor supply.

JEL-codes: H55 J1 J11 J14 J18 J26 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-hea, nep-lab and nep-pbe
Note: AG PE
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