Redistributive effects of different pension structures when longevity varies by socioeconomic status in a general equilibrium setting

Miguel Sánchez-Romero, Ronald Lee and Alexia Fürnkranz-Prskawetz

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: 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 some pension reforms 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 nonredistributive plan that accounts for differences in mortality, US Social Security reduces regressivity from longevity differences, but requires 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 enjoy welfare gains through indirect effects of pension systems on labor supply.

Keywords: Human capital; Longevity; Inequality; Life cycle; Social Security (search for similar items in EconPapers)
JEL-codes: E24 H55 J10 J18 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203628

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