The Economics of Pensions. Remarks on Growth, Distribution and Class Conflict

Codrina Rada

Working Paper Series, Department of Economics, University of Utah from University of Utah, Department of Economics

Abstract: This paper compares fully-funded (FF) and pay-as-you-go (paygo) pension plans in a Keynesian framework for an economy with overlapping generations and excess capacity. The model addresses both short/medium run equilibria and steady-states. Income distribution and class conflict, two crucial aspects of the political economy of pensions, become multidimensional. In a fully-funded economy class conflict between capitalists and labor gets diffused in the short-run by retirees' own interest to maintain a high profit share. In the long-run capitalists recognize that they can control their (net) share of profits by controlling employment and therefore the number of future retirees through capital accumulation. An extension of the model can show that fiscal policy is not always helpful in a fully-funded economy. A pay-as-you-go economy maintains a closer resemblance to the classical story of class conflict over income distribution. This is because workers and retirees have their interests aligned with the wage share. In this case fiscal policy through spending can be effective without creating a debt problem.

Keywords: social security; fully-funded; Keynesian OLG JEL Classification: E24; E12; G23; H55 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2012
New Economics Papers: this item is included in nep-age, nep-dge, nep-hme and nep-lab
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