SFB 303 Discussion Paper No. A - 284
Author: Peters, Wolfgang
Title: Public Pensions in Transition - An Optimal Policy Path
Abstract: The main purpose of this paper is to analyze problems
of financing an old-age insurance when birth rates are low
and population declines or fertility fluctuates with time. A
government then searches for optimal policies to cope with
such problems. A first criterion could be seen in the Pareto
principle. But we all know that there is no way out of PAYG
unless at least one generation has to pay for the transition.
Therefore an optimal policy is concerned with
intergenerational redistribution and optimal growth. In the
absence of public pensions the economy will in the long run
converge to a steady state which is not optimal in the sense
of a golden rule. This dynamic "in"-efficiency results from
the decentralized decision making by the consumers and the
firms. If the PAYG system influences the savings ratio of
the economy, public pensions can be seen as an instrument to
implement a modified golden rule.
Keywords:
JEL-Classification-Number:
Creation-Date: revised version December 1990
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