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Generational Accounting, Solidarity and Pension LossesCoen N. TeulingsUniversity of Amsterdam - SEO Economic Research; Tinbergen Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA) Casper G. De VriesErasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research) December 2003 IZA Discussion Paper No. 961 Abstract: The creeping stock market collapse eroded the wealth of funded pension systems. This led to political tensions between generations due to the fuzzy definition of property rights on the pension funds wealth. We argue that this problem can best be resolved by the introduction of generational accounts. Using modern portfolio and consumption planning theory we show that the younger generations should have the higher equity exposure due to their human capital. Capital losses should be distributed smoothly over lifetime consumption. When stock markets are depressed equity should be bought, savings and consumption should be scaled down equiproportionally, and retirement should be postponed. Portfolio investment restrictions are quite costly.
Number of Pages in PDF File: 20 Keywords: saving and investment, pension funds, private pensions, social security and public pensions, financial institutions JEL Classification: E2, G2, G23, J32, H55 working papers seriesDate posted: January 13, 2004Suggested CitationContact Information
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