PAY-AS-YOU-GO PENSIONS AND ENDOGENOUS RETIREMENT

2019 ◽  
Vol 24 (7) ◽  
pp. 1700-1719
Author(s):  
Pan Liu ◽  
Joachim Thøgersen
Keyword(s):  
Steady State ◽  
Pension System ◽  
Capital Intensity ◽  
Elasticity Of Substitution ◽  
Contribution Rate ◽  
Capital Labor Ratio ◽  
State Welfare ◽  
Private Savings ◽  
Pension Contribution ◽  
Endogenous Retirement

This paper revisits two classic results in standard overlapping generations models with a pay-as-you-go (PAYG) pension system. Firstly, a PAYG system crowds out private savings and reduces the overall capital stock. Secondly, in dynamically efficient economies, a PAYG system will reduce steady-state welfare. These classic results have been derived and exposed in models with no retirement decision. However, by allowing for endogenous retirement, and without taking recourse to any frictions, uncertainty, or myopia, it is shown that a PAYG system may be neutral and may even increase the capital–labor ratio. In particular, it is shown that the effect of the pension contribution rate on capital intensity depends on the elasticity of substitution between consumption and leisure. If the elasticity of substitution is between 0 and 1, an increase in the contribution rate will increase capital intensity. Moreover, it is shown that the result regarding welfare may also be overturned. An increase in the PAYG contribution rate may increase steady-state welfare.

scholarly journals Measuring retirement savings adequacy: developing a multi-pillar approach in the Netherlands

2014 ◽  
Vol 15 (1) ◽  
pp. 55-89 ◽  
Author(s):  
MARIKE KNOEF ◽  
JIM BEEN ◽  
ROB ALESSIE ◽  
KOEN CAMINADA ◽  
KEES GOUDSWAARD ◽  
...  
Keyword(s):  
Pension System ◽  
Vulnerable Groups ◽  
Median Income ◽  
Retirement Savings ◽  
Housing Wealth ◽  
Replacement Rate ◽  
Data Set ◽  
Public And Private ◽  
Private Savings ◽  
The Uk

AbstractThe Dutch pension system is highly ranked on adequacy. These rankings, however, are based on fictitious replacement rates for median income earners. This paper investigates whether the Dutch pension adequacy is still high when we take into account the resources that people really accumulate, using a large administrative data set. A comprehensive approach is followed: not only public and private pension rights, but also private savings and housing wealth are taken into account. Summed over all age- and socioeconomic groups we find a median gross replacement rate of 83% and a net replacement rate of 101%. At retirement age, 31% of all households face a gross replacement rate that is lower than 70% of current income. Public and occupational pensions each account for more than 35% of total pension annuities. Private non-housing assets account for 14% and imputed rental income from net housing wealth accounts for about 10%. Some vulnerable groups, such as the self-employed, have below average replacement rates. Results are fairly similar to results found in the UK, indicating that we should be careful in evaluating the adequacy of pensions systems on the basis of fictitious replacement rates.

PRODUCTION SUBSIDY AS A MACROECONOMIC POLICY IN A STAGNATION ECONOMY

2008 ◽  
Vol 53 (02) ◽  
pp. 317-333 ◽  
Author(s):  
WATARU JOHDO
Keyword(s):  
Steady State ◽  
Utility Function ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Macroeconomic Policy ◽  
Elasticity Of Substitution ◽  
Nominal Wage ◽  
Differentiated Products ◽  
Effective Demand ◽  
Number Of Firms

This paper analyzes the effects of a changing production subsidy in a model with money-in-the-utility function for households, monopolistic competition amongst an endogenously-determined number of firms, and nominal wage sluggishness that can prevent the equilibrium from attaining full employment. Its conclusion is that in a steady state with less than full employment (that is, under stagnation), a larger production subsidy will promote entry and stimulate effective demand provided that the elasticity of substitution among the differentiated products is sufficiently high. This paper is motivated by recent Japanese experiences.

FACTOR SUBSTITUTION AND ECONOMIC GROWTH: A UNIFIED APPROACH

2012 ◽  
Vol 16 (4) ◽  
pp. 625-656 ◽  
Author(s):  
Jianpo Xue ◽  
Chong K. Yip
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Growth Models ◽  
Elasticity Of Substitution ◽  
Unified Approach ◽  
Factor Income ◽  
Factor Substitution ◽  
State Income ◽  
Per Capita ◽  
Relative Scarcity

This paper provides a unified approach to characterizing the relation between factor substitution and economic growth in different one-sector growth models (namely, the Solow, Ramsey, and Diamond models). Our main finding is that if better factor substitution raises savings in the steady state, then a higher per capita income results. There are two channels by which factor substitution affects savings: the positive efficiency effect via income and the ambiguous distribution effect via factor income shares. If the efficiency effect dominates, then a higher elasticity of substitution leads to a higher level of per capita steady-state income. In transition, factor substitution affects the rate of convergence both directly and through the equilibrium profit share. The former arises from diminishing marginal productivity of capital whereas the latter reflects its relative scarcity. Depending on the interaction of these effects, the net outcomes are characterized.

Private Pension Systems Built on Precarious Foundations: A Cohort Study of Labor-Force Trajectories in Chile

2019 ◽  
Vol 41 (10) ◽  
pp. 961-987 ◽  
Author(s):  
Ignacio Madero-Cabib ◽  
Andres Biehl ◽  
Kirsten Sehnbruch ◽  
Esteban Calvo ◽  
Fabio Bertranou
Keyword(s):  
Labor Force ◽  
Pension System ◽  
Decision Makers ◽  
Private Pension ◽  
Pension Systems ◽  
Old Age Security ◽  
Working Lives ◽  
Private And Public ◽  
Formal Employment ◽  
Pension Contribution

The success of private pension systems to provide old-age security is mainly a function of continuous individual pension contributions linked to formal employment. Using a rich longitudinal dataset from Chile and employing sequence analysis, this study examines the pension contribution histories and formal employment pathways of a cohort of individuals who began their working lives simultaneously to the introduction of the Chilean private pension system in the early 1980s, which pioneered private-oriented pension reforms worldwide. Results show that more than half of the individuals from this cohort developed labor-force trajectories inconsistent with continuous pension contributions and formal employment, which particularly affects women and lower educated people. We conclude that policy and decision makers focused on aging topics should be aware of the increasing diversity and precariousness of labor-force trajectories when evaluating the performance and sustainability of both private and public pension regimes.

Konjunkturabhängigkeit der Gesetzlichen Rentenversicherung am Beispiel der aktuellen Finanz- und Wirtschaftskrise

2010 ◽  
Vol 59 (3) ◽  
Author(s):  
Axel Börsch-Supan ◽  
Martin Gasche ◽  
Christina Benita Wilke
Keyword(s):  
Economic Crisis ◽  
Pension System ◽  
Labour Force ◽  
Public Pension ◽  
Pension Benefit ◽  
Contribution Rate ◽  
Public Pension System ◽  
Detailed Simulation ◽  
The Government ◽  
System 1

AbstractThe financial and economic crisis has drawn attention again on the question how sensitive the German public pension system (Gesetzliche Rentenversicherung) reacts to cyclical shocks. We identify three important channels through which business cycle movements may affect the pension system: (1) An effect caused by changes in the wage sum of the insured labour force (Beitragsgrundlageneffekt), (2) an effect caused by changes in the size of the government subsidy (Bundeszuschusseffekt) and (3) an effect caused by changes in the size of the annual pension adjustments (Rentenanpassungseffekt). We quantify these effects for the current financial and economic crisis using a detailed simulation model of the German pension system (MEA-PENSIM). Our simulation results show that the public pension system is able to cope with cyclical shocks in the sense that there are no longrun effects on the pension benefit level or the contribution rate. This cyclical stability is inherent in the system’s pension adjustment formular that links the size of benefits to the development of wages. However, it can be shown that cyclical shocks lead to increases in the contribution rate in the short and medium run. The new law that was passed in spring 2009, which forbids a decrease in nominal pension adjustments in case of decreasing wages (Rentengarantie), extends and intensifies these negative short and medium run effects because it partially offsets the automatic stability mechanism via the wage orientated pension adjustment formula.

MINIMUM CONSUMPTION REQUIREMENTS: THEORETICAL AND QUANTITATIVE IMPLICATIONS FOR GROWTH AND DISTRIBUTION

1999 ◽  
Vol 3 (4) ◽  
pp. 482-505 ◽  
Author(s):  
Satyajit Chatterjee ◽  
B. Ravikumar
Keyword(s):  
Economic Growth ◽  
Growth Rate ◽  
Steady State ◽  
Wealth Distribution ◽  
Household Wealth ◽  
Elasticity Of Substitution ◽  
Positive Dependence ◽  
Per Capita ◽  
State Growth ◽  
The Impact

We study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. We calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate.

Steady-state welfare effects of social security in a large open economy

1993 ◽  
Vol 58 (S1) ◽  
pp. 43-49
Author(s):  
Friedrich Breyer ◽  
David E. Wildasin
Keyword(s):  
Steady State ◽  
Social Security ◽  
Open Economy ◽  
Welfare Effects ◽  
State Welfare

scholarly journals MONETARY POLICY, FACTOR SUBSTITUTION, AND CONVERGENCE

2016 ◽  
Vol 22 (1) ◽  
pp. 63-76
Author(s):  
Rainer Klump ◽  
Anne Jurkat
Keyword(s):  
Monetary Policy ◽  
Steady State ◽  
Production Functions ◽  
Elasticity Of Substitution ◽  
Model Parameters ◽  
Speed Of Convergence ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Factor Substitution ◽  
The Impact

In this paper, we examine the influence of monetary policy on the speed of convergence in a standard monetary growth model à la Sidrauski allowing for differences in the elasticity of substitution between factors of production. The respective changes in the rate of convergence and its sensitivities to the central model parameters are derived both analytically and numerically. By normalizing the constant elasticity of substitution (CES) production functions both outside the steady state and within the steady state, it is possible to distinguish between an efficiency and a distribution effect of a change in the elasticity of substitution. We show that monetary policy is the more effective, the lower is the elasticity of substitution, and that the impact of monetary policy on the speed of convergence is mainly channeled via the efficiency effect.

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